AP MICROECONOMICS UNIT #3



AP MICROECONOMICS UNIT #3

THE FIRM

GEORGIA STANDARDS OF EXCELLENCE (GSE) IN THIS UNIT

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COLLEGE BOARD STANDARDS IN THIS UNIT

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II. The Nature and Functions of Product Markets. . . .. . .. (35-50% from this unit)

C. Production and costs (10–15%)

1. Production functions: short and long run

2. Marginal product and diminishing returns

3. Short-run costs

4. Long-run costs and economies of scale

5. Cost minimizing input combination and productive efficiency

D. Firm behavior and market structure (25–35%)

1. Profit

a. Accounting versus economic profits

b. Normal profit

c. Profit maximization: MR=MC rule

2. Perfect competition

a. Profit maximization

b. Short-run supply and shutdown decision

c. Behavior of firms and markets in the short run and in the long run

d. Efficiency and perfect competition

3. Monopoly

a. Sources of market power

b. Profit maximization

c. Inefficiency of monopoly

d. Price discrimination

e. Natural monopoly

4. Oligopoly

a. Interdependence, collusion, and cartels

b. Game theory and strategic behavior

c. Dominant strategy

d. Nash equilibrium

5. Monopolistic competition

a. Product differentiation and role of advertising

b. Profit maximization

c. Short-run and long-run equilibrium

d. Excess capacity and inefficiency

KEY IDEAS SHEET

Refer to the sheet given out in class.

READING ASSIGNMENTS (MODULES FOUND IN SECTIONS 10, 11, 12 OF E-BOOK)

1. The Production Function: Module 54.

2. Firm Costs: Module 55.

3. Long-Run Costs and Economies of Scale: Module 56.

4. Introduction to Market Structure: Module 57.

5. Defining Profit: Module 52.

6. Profit Maximization: Module 53.

7. Introduction to Perfect Competition: Module 58.

8. Graphing Perfect Competition: Module 59.

9. Long-Run Outcomes in Perfect Competition: Module 60.

10. Introduction to Monopoly: Module 61.

11. Monopoly and Public Policy: Module 62.

12. Price Discrimination: Module 63.

13. Intro to Monopolistic Competition: Module 67.

14. Product Differentiation and Advertising: Module 68.

15. Intro to Oligopoly: Module 64.

16. Game Theory: Module 65.

17. Oligopoly in Practice: Module 66.

LECTURES

1. The Production Function and Short-Run costs chart.

2. Costs in the Short-Run graphs.

3. Market Structure Characteristics.

4. Perfect Competition Chart including revenues, costs, and profits/loss and profit-maximizing rule (MR=MC).

5. Perfect competition graph analysis.

6. Perfect competition FRQ.

7. Monopoly revenue calculation and basic graphs.

8. Monopoly graph interpretation.

9. Monopoly FRQ.

10. Monopolistic Competition.

11. Oligopoly #1.

12. Oligopoly #2.

UNIT PROBLEM SET: due the day before the test

QUIZZES

1. The Production Function and Short-Run costs chart.

2. Costs in the Short-Run graphs.

3. Market Structure Characteristics.

4. Perfect Competition Chart including revenues, costs, and profits/loss and profit-maximizing rule (MR=MC).

5. Perfect competition graph analysis.

6. Perfect competition FRQ.

7. Monopoly revenue calculation and basic graphs.

8. Monopoly graph interpretation.

9. Monopoly FRQ.

10. Monopolistic Competition.

11. Oligopoly #1.

12. Oligopoly #2.

TEST PRACTICE: will work on in class the day before the test

1. Sample Multiple Choice.

2. Sample Free Response. Will do during the unit and for quizzes as well.

TEST

Unit Test #3 including multiple choice and FRQs

VOCABULARY

sole proprietorship

partnership

corporation

economic cost

explicit cost

implicit cost

normal profit

economic profit

total product (TP or Q)

marginal product (MP)

average product (AP)

law of diminishing returns

fixed costs (TFC)

variable costs (TVC)

total cost (TC)

average fixed cost (AFC)

average variable cost (AVC)

average Total Cost (ATC)

marginal Cost (MC)

economies of scale

constant returns to scale

diseconomies of scale

perfect competition

total revenue (TR)

average revenue (AR)

marginal revenue (MR)

MR=MC rule

constant-cost industry

increasing-cost industry

decreasing-cost industry

monopoly

deadweight loss

allocative efficiency

natural monopoly

fair-return pricing

marginal cost pricing

price discrimination

monopolistic competition

nonprice competition

excess capacity

oligopoly

4-firm concentration ratio

Herfindhal index

mutual interdependence

collusion

cartel

game theory

dominant strategy

dominant strategy

Nash Equilibrium

kinked demand curve

GRAPH/CHART/APPLICATION SKILLS

1. Compute marginal product and average product from a table and a graph.

2. Compute TFC, TVC, TC, AFC, ATC, and MC from a table and from a graph.

3. Identify cost and production curves on a graph.

4. Interpret long-run ATC graphs.

5. Compute price, quantity, total revenue, average revenue, and marginal revenue from a table and a graph for all market structures.

6. Identify profit, break-even, loss, and shutdown from total cost/total revenue curves and from average cost/average revenue curves from all market structures.

7. Determine the profit-maximizing output level in all four market structures.

8. Analyze how changes in the industry of a product changes cost and revenue for the firms in that industry (in all market structures).

9. Identify different output and price levels for a monopoly under government regulation.

10. Identify the deadweight loss from a monopoly on a graph.

11. Compute and analyze Herfindhal index figures for different industries.

12. Interpret a profit payoff matrix for an oligopoly.

13. Interpret the kinked demand curve of an oligopoly.

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