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ECONOMICS 2306
REVIEW SHEET FOR EXAM II
The following is a thorough but not exhaustive list of the concepts you need to have mastered for the
exam. You should know definitions of terms; formulas and how to use them; graphs, what they
represent, and how to read them; tables and how to work with them.
CHAPTER 7
Profit: accounting profit; economic profit; normal profit; explicit and implicit costs; total profit
Short run and long run; variable resources and fixed resources
Total product, production function, marginal product: definitions; increasing and diminishing
marginal returns; law of diminishing marginal returns; total product and marginal product
graphs
Costs: fixed cost, variable cost, total cost; marginal cost; average fixed cost, average variable cost;
average total cost. Know how to calculate each of these costs; know how to graph each of
these costs. Know the relationship between total product and total cost; know the
relationship between marginal product and marginal cost. Understand the relationship
between marginal cost and average variable cost and between marginal cost and average
total cost.
Long run average cost curve: definition; graph; economies of scale, constant long run average
cost, and diseconomies of scale
CHAPTER 8
Perfect competition: features; why the firm is a price taker; reason for the shape of the firm’s
demand curve
Profit-maximizing level of output: know how to use the total approach to determine the profitmaximizing or loss-minimizing level of output and the firm’s total profit or total loss;
know how to use the total approach when given a data table; know how to read the TR and
TC graph; know what the TR and TC graphs would look like for a perfectly competitive
firm earning a profit, breaking even, producing to minimize losses, and shutting down
Profit-maximizing level of output: know how to use the marginal approach by applying Rule #1
and Rule #2 to determine the profit-maximizing or loss-minimizing level of output; know
how to use the marginal approach when given a data table; know how to find the profit or
loss per unit; know what the graphs would look like for a perfectly competitive firm
earning a profit, breaking even, producing to minimize losses, and shutting down; know
how to find the firm’s short-run supply curve and how to use firms’ short run supply
curves to generate the industry’s short run supply curve
Perfect competition in the long run: know what will cause entry into and exit from the industry;
know why in the long run the firm in perfect competition will earn only zero economic
profit
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CHAPTER 9
Monopoly: features; types of entry barriers; why the monopolist is a price maker; shapes of the
demand, total revenue, and marginal revenue curves
Profit-maximizing level of output: know how to use the total approach to determine the profitmaximizing or loss-minimizing level of output and the firm’s total profit or total loss;
know how to use the total approach when given a data table; know how to read the TR and
TC graph; know what the TR and TC graphs would look like for a monopoly firm earning
a profit, breaking even, producing to minimize losses, and shutting down
Profit-maximizing level of output: know how to use the marginal approach by applying Rule #1
and Rule #2 to determine the profit-maximizing or loss-minimizing level of output; know
how to use the marginal approach when given a data table; know how to find the profit or
loss per unit; know the graphs for a monopoly firm earning a profit, breaking even,
producing to minimize losses, and shutting down; remember that when reading the graph
for a monopolist, you go to the demand curve to find the price of the product!
Monopoly in the long run
Compare and contrast monopoly and perfect competition
Price discrimination and role of elasticity of demand
CHAPTER 10
Monopolistic competition: characteristics; forms of product differentiation; why the firms is a
price maker; shape of the demand and marginal revenue curves
Profit maximization or loss minimization: know how to use the total approach to determine the
profit-maximizing or loss-minimizing level of output; know how to use the marginal
approach by applying Rule #1 and Rule #2 to determine the profit-maximizing or lossminimizing level of output; know the graphs for a monopolistically competitive firm
earning a profit, breaking even, producing to minimize losses, and shutting down; know
how to find total revenue, total cost, profit per unit, and total profit; remember that when
reading the marginal-approach graph for a monopolistically competitive firm, you go to the
demand curve to find the price of the product!
Monopolistic competition in the long run
Compare and contrast monopolistic competition and perfect competition
Oligopoly: characteristics; importance of interdependence; collusion and cartels; price leadership
Compare and contrast oligopoly and perfect competition
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