Ap Microeconomics Unit #3

AP MICROECONOMICS UNIT #3

THE FIRM

GEORGIA PERFORMANCE STANDARDS IN THIS UNIT

SSEMI4 The student will explain the organization and role of business and analyze

the four types of market structures in the U.S. economy.

a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation.

b. Explain the role of profit as an incentive for entrepreneurs.

c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.

COLLEGE BOARD STANDARDS IN THIS UNIT

I. Basic Economic Concepts ...... (8–14%)

F. Marginal analysis

II. The Nature and Functions of Product Markets...... (55–70%)

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 at the start of the unit.

READING ASSIGNMENTS

1. Chapter 4: pp. 68-69.

2. Chapter 20: pp. 378-384.

3. Chapter 20: pp. 384-389.

4. Chapter 20: pp. 389-396.

5. Chapter 21: pp. 399-409.

6. Chapter 21: pp. 409-420.

7. Chapter 22: pp. 423-436.

8. Chapter 22: pp. 436-441.

9. Chapter 23: pp. 444-450.

10. Chapter 23: pp. 451-464.

LECTURES

1. The Production Function.

2. Costs in the Short-Run.

3. Costs in the Long-Run.

4. Introduction to Perfect Competition.

5. Short-Run and Long-Run Per. Comp.

6. Introduction to Monopoly.

7. Monopoly charts/graphs.

8. Inefficiency of monopoly/regulation.

9. Monopolistic Competition.

10. Oligopoly #1.

11. Oligopoly #2.

TEXTBOOK STUDY QUESTIONS

1. Chapter 20: 2, 4, 7, 10.

2. Chapter 21: 3, 4, 6, 7.

3. Chapter 22: 4, 5, 6, 12.

4. Chapter 23: 2,7, 8, 9, 11.

ONLINE QUIZZES FROM TEXTBOOK SITE LINK ON THE BLOG

1. Chapter 7: 1-10.

2. Chapter 8: 1-10.

3. Chapter 9: 1-10.

4. Chapter 10: 1-10.

5. Chapter 11: 1-10.

UNIT PROBLEM SET: due the day before the test

UNIT GRAPHS: due the day of the test

See handout

QUIZZES

1. Business organizations. (15)

2. Production Function. (16)

3. Basics of costs. (17)

4. Revenue/Cost/Profit for Perfect Competition. (18)

5. Computing Revenue/Cost/Profit from Graphs. (19)

6. Perfect Competition FRQ. (20)

7. Basics of Monopoly. (21)

8. Monopoly graph interpret. (22)

9. Natural/regulated monopoly and price discrimination. (23)

10. Monopoly FRQ. (24)

11. Monopolistic competition. (25)

12. Oligopoly demand curve. (26)

13. Game theory. (27)

14. Market structures review. (28)

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

OBJECTIVES

1. Explain the relationship between marginal cost and marginal product and marginal cost and AVC and ATC.

2. List and analyze the differences between the four major market structures.

3. Explain the tendency towards break-even in the long-run in perfect competition.

4. Explain entry barriers that keep competitors out of industries controlled by monopolies.

5. Explain the gap between marginal revenue and price in noncompetitive markets.

6. Explain how elasticity of the demand curve determines output and pricing in a monopoly.

7. Analyze why noncompetitive markets are less efficient than perfect competition.

8. Identify and analyze pricing problems associated with an oligopoly.

VOCABULARY

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

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.