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AP MICROECONOMICS-2017
Name: ________________________
Study Guide Unit #2: Chapter 13 +14
Mandatory for all students DUE: Block Period March 1st or 2nd
1) The graph above displays 3 curves: Marginal Product. Total Product & Average Product of Labor (workers).
a. Label the appropriate curves as: MP, TP and AP
2) Define Marginal Product: _______________________________
3) Explain the reasons for the shape of the marginal product of labor curve (in terms of initially rising & then falling)
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4) Whenever MP is increasing you are in the area of _____________________________ and therefore the marginal cost of a
firm must be ________________________.
5) Define Marginal Cost (MC)
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6) Label all 4 cost curves below:
7) At what point does curve A cross curve B and cross curve C?
__________________________________
8) Why does curve D approach the x-axis but never touch it? _____________________________________________________
9) Explain how an accountant would calculate ATC versus the method an economist would use to calculate ATC.
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10) Write 2 formulas for calculating economic profit:
________________________
__________________________
11) Define zero economic profit (“i.e. normal”) ________________________________________________________________
12) List the five market characteristics of a Perfect Competition Industry: (also called a competitive market)
a. Categories: # of firms, type of product, ease of entry/exit, information, price control
↓
↓
↓
↓
↓
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Entire Industry
Individual Firm
Price
S1
-------------
$10 --------------
E1
Q1
Price
$10
D1
D1
Q1
Qty
T-Shirts
Qty
T-Shirts
13) Clearly explain why an individual firm in a competitive market has or “sees” a horizontal demand curve?
a. What does this imply about the relationship of Price, Average Revenue & Marginal Revenue?
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14) Explain why an individual firm in a competitive market increases production until MR
a. Hint: think of the profit on the very last unit produced using this formula!
≥ MC to maximize profit?
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15) The competitive Market for Blue Jeans is in equilibrium at a price of $60. The cost curve table below is for an individual
firm in the competitive market for Blue Jeans.
(as is the demand curve table)
Please fill in the following table and find the profit maximizing level of production for this individual competitive firm.
|------------------- COST CURVES--------------------------------| |-------------------DEMAND CURVE------------|
Quantity
Produced
Total
Cost
MC
0
1
2
3
4
5
6
100
150
202
257
317
385
465
-50
ATC
AVC
--
--
85.66
79.25
51.00
52.33
54.25
77.5
60.83
Quantity
Demanded
Price
0
1
2
3
4
5
6
60
60
60
60
60
60
60
Total
Revenue
Marginal
Revenue
-60
-60
a. Fixed costs are ________ What quantities display economies of scale: _____________
b. This firm should produce: _________ units. (in short run) as it sets MR = __________
c. The economic profit for this firm = ________________________ (P – ATC) * Qty
d. Why should this firm still operate with an economic loss? ___________________________
e. Can this be a long run equilibrium? Explain…. _______________________________________
16) Draw a long run equilibrium for a competitive market in both graphs below.
(use MC, AVC, ATC & MR=D)
Individual Firm
(use S & D curves plus the long run market supply curve)
Entire Market
17) Based on your graphs above list 3 requirements for a competitive market to be in long run equilibrium


-
________________________
________________________
-
________________________
18) Analyze the difference between a FIRM short run supply curve and a FIRM’s long run supply curve (supply for 1INDIVIDUAL FIRM)
a.
Mention ATC & AVC in your answer & use the terms SHUTDOWN & EXIT in your analysis
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19) Discuss the difference between the short run MARKET supply curve vs. long run MARKET supply curve for an entire
industry. (supply curves in left hand graph above…)
b. Hint: Why is there a difference between these 2 supply curves?
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Marginal Cost Table:
QTY= 30
40
50
60
MC = $8 $10
$12
$14
ATC = $8 $8.5 $10
$11
20) The table above is for an individual firm in a competitive market.
Based on the Marginal Cost Table above at a market price of $10: (remember they are a price taker! So MR = $10)
a. How many units would be produced: __________
b. What is the economic profit for this firm? __________ I
c. Is their Accounting profit above or below this? _________________________________
d. If market demand rose causing price to rise to $14 dollars
i. How many units would be produced: ______________
ii. Calculate the economic profit of this firm (show calculations…)
21) Each graph above has 3 equilibrium points (A,B,C)
a.
Explain what caused the shifts from point A to point B in both graphs (start with entire market graph)
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b.
Explain what caused the shifts from point B to point C in both graphs
 Why did this have to occur, what is economic profit, are there more or less individual firms at point C vs A
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22) Finally add a long run MARKET supply curve to the entire market graph above (left graph)
TOTAL SCORE
Excellent Work
____
Very Good Work
____
Good Work
____
Poor Work
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________/30 PTS