Microeconomics formulas

In this article, we will publish a list of most common microeconomics formulas that you might use in your projects.

1Total RevenuePrice x Quantity in Demand
2Marginal RevenueChanges in Total Revenues Earned / Changes in the Quantity Traded
3Average RevenueTotal Income or Revenue earned by the Business / Total Quantity
4Total CostsTotal costs incurred on a fixed basis + Total costs that vary with the quantity produced
5Marginal CostsChanges in the Level of Total Costs / Changes in the level of Quantity Produced
6Average CostTotal Costs / Total Quantity
7Average FixedTotal Fixed Costs / Total Quantity
8Average VariablesTotal Variable Costs / Total Quantity
9Profit EarnedTotal Revenue – Total Costs
10Profit EarnedMarginal Revenue – Marginal Costs

Rule Of 72

The rule of 72 is a mathematical rule that can be used to approximate how long it will take for an investment to double in value.

72 / Expected Avg. Rate of Return = Years Until Investment Doubles in Value

For example, if you plan to earn a 10% return on your investment, it will take 7.2 years for your money to double (72/10 = 7.2). Or, 7 years and 73 days (365 * 0.2).

This rule of 72 could also apply to estimate the devaluation of money due to inflation.
For example, if inflation is 8%, in 72/8 = 9 years, the purchasing power of your current dollar will be reduced by half.

The 4% Rule

The 4% rule states that if an individual wants to have a 95% chance of not running out of money in retirement, they should plan to withdraw only 4% of their savings each year, adjusted for inflation.

Another use of this formula is to predict, approximately, how much money do you need to have in your savings, in order to live comfortably.

For example, you have determined, that your spendings are 5000$/month.
This will be 5000 * 12 = 60000$/year.

Now, divide this sum by 0.04. This will give you the amount of money you must have in your savings, in order to live comfortably, without working.

So, 60000/0.4 = 1500000$ = 1.5M $.

The latter, of course, assumes that your savings bring you 4% of interest annualy.