Be careful

to recognize

when it is

an INPUT problem

If a monopolist increases price, and as a result, TR increases… what is Elasticity?

Or with a twist… If a firm increases output, and and as a

result, TR increases… what is Elasticity?

Hint: always picture it on a graph, and remember the TR Test rules.

If MR > 0 … Elastic … TR still increasing

If MR = 0 … Unit Elastic … TR is maximized

If MR < 0 … Inelastic … TR is decreasing

Remember … If you spend your budget and (MU / P)A = (MU/P) B You have maximized your utility

Tip … if they are NOT equal, you want to buy more of the one that has a HIGHER MU/P

Quantity Marginal Cost

Total Fixed Cost

0 -- 201 30 02 20 03 25 04 30 0

Given a table such as this… What is the AVC producing 2 units? What is the ATC of producing 3 units? What is AFC producing 4 units

Example (all numbers refer to daily production of bikes by a typical firm:

TFC = $400 Average product of labor/day = 50 units Q = 50 units Labor costs (aka wage rate)= $80 per

worker

What is Average Total Cost per bike

MC decreases rapidly, then increases (nike)

ATC and AVC initially decrease, but then increase (but never touch)

AFC will always decrease, but never reach zero (TFC/Q)

MR will decrease (below D=AR=P)… unless it is Perf.Comp (where all these are horizontal)

If a perfectly-competitive firm that wishes to maximize profits in the short run is producing a quantity of 1000 units at a point where: › price is $36, Average total cost is $45,

Marginal cost is $42, and Average variable cost is $15… What, if anything, should they do with P and Q to maximize profit?

Can you instantly spot…

Allocative Efficient Socially Optimal

Productive Efficient Fair Return Price

P=MC P=MC

P=ATCmin P=ATC

Your scores are scaled to the AP (good news)… because AP Tests are DIFFICULT (not so good news). That is why the average AP student only gets 55-60% correct. › Unit 1(4-8 questions)› Unit 2 (9-12 questions)› Unit 3 (5-8 questions)› Unit 4 (7-10 questions)› Unit 5 (15-18 questions)› Units 6&7 (12-15 questions)