Click image to open full size
Microeconomics Intermediate Theory Cheat Sheet
A printable reference covering utility maximization, cost curves, market equilibrium, elasticity, profit maximization, and welfare analysis for college.
Related Worksheets
Related Infographics
Intermediate microeconomics explains how consumers, firms, and markets make decisions when resources are limited. This cheat sheet helps students connect graphs, formulas, and intuition across the main models used in college micro theory. It is useful for reviewing problem setups, checking first-order conditions, and interpreting economic results. The focus is on the tools most often used in exams and applied analysis. The core ideas include marginal reasoning, constrained optimization, elasticity, cost minimization, and equilibrium. Consumers choose bundles where MUx/Px = MUy/Py when preferences are well behaved, while firms produce where MR = MC when maximizing profit. Market outcomes are evaluated using surplus, deadweight loss, and comparative statics. Many problems become easier when you identify the objective, constraint, choice variable, and relevant marginal condition.
Key Facts
- Consumer optimization occurs when MUx/Px = MUy/Py and the budget constraint PxX + PyY = I is satisfied.
- The marginal rate of substitution is MRS = MUx/MUy, and at an interior optimum MRS = Px/Py.
- Price elasticity of demand is Ed = (% change in quantity demanded)/(% change in price), or Ed = (dQ/dP)(P/Q).
- Total cost equals fixed cost plus variable cost, so TC = FC + VC, and marginal cost is MC = change in TC/change in Q.
- Average total cost is ATC = TC/Q, average variable cost is AVC = VC/Q, and average fixed cost is AFC = FC/Q.
- A profit-maximizing firm chooses output where MR = MC, as long as price or revenue covers the relevant shutdown condition.
- In perfect competition, each firm takes price as given and produces where P = MC if P >= AVC in the short run.
- Total surplus equals consumer surplus plus producer surplus, and deadweight loss measures lost surplus from inefficient output.
Vocabulary
- Marginal utility
- Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good.
- Budget constraint
- A budget constraint shows all combinations of goods a consumer can afford given prices and income.
- Marginal cost
- Marginal cost is the additional cost of producing one more unit of output.
- Elasticity
- Elasticity measures how responsive one variable is to a percentage change in another variable.
- Producer surplus
- Producer surplus is the difference between what sellers receive and the minimum amount they would accept.
- Deadweight loss
- Deadweight loss is the loss of total surplus caused by producing more or less than the efficient quantity.
Common Mistakes to Avoid
- Confusing MRS with the price ratio is wrong because MRS = MUx/MUy describes preferences, while Px/Py describes the market tradeoff.
- Using total values instead of marginal values is wrong because optimization depends on changes at the margin, such as MR = MC or MUx/Px = MUy/Py.
- Ignoring constraints is wrong because consumer and firm choices are limited by income, technology, or costs, not just by preferences or revenue.
- Treating elasticity as the slope is wrong because slope uses unit changes, while elasticity uses percentage changes and varies along most demand curves.
- Assuming profit is maximized whenever revenue is high is wrong because profit equals TR - TC, so costs and marginal cost must be considered.
Practice Questions
- 1 A consumer has MUx = 20, MUy = 10, Px = 4, and Py = 1. Is the consumer maximizing utility, and if not, which good should they buy more of?
- 2 A firm has TC = 100 + 10Q + 2Q^2. Find MC and calculate MC when Q = 5.
- 3 Demand changes from Q = 100 to Q = 80 when price rises from P = 10 to P = 12. Using the midpoint method, calculate the price elasticity of demand.
- 4 Explain why a binding price ceiling below equilibrium can create deadweight loss even though some consumers pay a lower price.