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Review PowerPoint Chapters 7-9. AP Microeconomics Mr. Meier Penn Manor HS. Test 1-9 estimated Breakdown. Unit 1 (~3 questions) Unit 2 (~3-4 questions) Unit 3 (~12-14 questions) Unit 4 (~20-24 questions). A – AVC+AFC = ATC … ATC * Q = TC. Which of the following is true?

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Review PowerPoint Chapters 7-9

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Review powerpoint chapters 7 9

Review PowerPointChapters 7-9

AP Microeconomics

Mr. Meier

Penn Manor HS


Test 1 9 estimated breakdown

Test 1-9 estimated Breakdown

Unit 1 (~3 questions)

Unit 2 (~3-4 questions)

Unit 3 (~12-14 questions)

Unit 4 (~20-24 questions)


A avc afc atc atc q tc

A – AVC+AFC = ATC … ATC * Q = TC

  • Which of the following is true?

    • TC = (AVC + AFC) * Q

    • TFC = TC at all levels of output

    • AVC + AFC = TC

    • MC = TC – TFC

    • ATC = AVC + MC


Mc curve above the shutdown point

MCcurve above the Shutdown Point

  • A firm’s short run supply curve is equivalent to its _________________ above _________________.


C implicit costs tc accounting costs

C – Implicit costs = TC – accounting costs

  • Implicit costs of a “Mom & Pop” owned business include

    • Their accounting profits

    • Their to accounting costs

    • The earnings that could have been earned by using resources elsewhere

    • The revenue their business earned this year

    • The Average Revenue of other Mom & Pop businesses


B that would be diseconomies of scale

B – that would be DISeconomies of Scale

  • Which of the following is NOT correct about economies of scale?

    • They are associated with increases in output

    • They are associated with the increasing portion of the LR ATC curve

    • They are associated with the decreasing portion of the LR ATC curve

    • They demonstrate decreases in per unit average total costs as plant size increase

    • They may be caused by increased specialization and technology


D but can you explain why

D = but can you EXPLAIN why?

  • Marginal Cost (MC) is equal to average variable cost (AVC) and Average Total Cost (ATC) when:

    • MC intersects AVC and ATC at their maximum points

    • AVC and ATC intersect MC at its maximum point

    • AVC and ATC intersect MC at its minimum point

    • MC intersects AVC and ATC at their minimum points

    • The economy is in the recovery phase of the business cycle


Productive yes allocative yes

Productive: YESAllocative: YES

  • In the long run, a perfectly competitive firm without government intervention will ALWAYS achieve:

    • Productive Efficiency?

    • Allocative Efficiency?

      (Yes or no – for each)


A p c has the most competitors

A – P.C. has the most competitors

  • For which of the following market structures are the most substitutes available to consumers?

    • Perfect Competition

    • Monopolistic Competition

    • Oligopoly

    • Monopoly

    • All of the above


Review powerpoint chapters 7 9

A – Perfectly competitive firm… means perfectly elastic demand (why don’t they just drop the price $0.01 and get all the business???

  • Which of the following market structures has the greatest degree of elasticity?

    • Perfect Competition

    • Monopolistic Competition

    • Oligopoly

    • Monopoly

    • All of the above


P3 p1 p3

P3, P1, P3

  • At what P will this firm earn a normal profit?

  • Below what P will this firm shut down in the short run?

  • Above what P will this firm earn economic profit?


P4 q3 because p avc shutdown pt aka they would not even be covering their variable costs

P4, Q3, because P<AVC (shutdown pt.) .. Aka they would not even be covering their variable costs.

  • At what P will this firm earn an economic profit?

  • In the long run, what will be this firm’s output level?

  • A firm never choose to produce at price P BECAUSE…


D same s decreases p increases atc same mr increases output for typical firm increases as p rises

D same, S decreases, P increasesATC same, MR increases, Output for typical firm increases as P rises.

  • Is this graph showing a firm in SR or LR ?

  • In the LR, how will the following change?

    • On MarketGraph: Demand, Supply, Price

    • On FirmGraph: ATC, MR, Output level


A tons of sellers

A – Tons of sellers

  • Which of the following market structures has the largest number of sellers?

    • Perfect Competition

    • Monopolistic Competition

    • Oligopoly

    • Monopoly

    • All of the above


A p c is a price taker

A – P.C. is a PRICE TAKER

  • Which of the following market structures is NOT a price maker?

    • Perfect Competition

    • Monopolistic Competition

    • Oligopoly

    • Monopoly

    • All of the above


B mc mr mc mr mc mr

B –- MC = MR !MC = MR !!!MC = MR !!!!!!!!!!!!!!!!!!!!!

  • Firms maximize their profits by producing a level of output at which

    • MC = AFC

    • MC = MR

    • P = ATC

    • MR = AVC

    • P = AVC


Review powerpoint chapters 7 9

B –- MC = MR !MC = MR !!!MC = MR !!!!!!!!!!!!!!!!!!!!!

  • All Firms maximize their profits by producing where:

    • MC = AFC

    • MC = MR

    • P = ATC

    • MR = AVC

    • P = AVC


Review powerpoint chapters 7 9

C – If a firm cannot even cover its VARIABLE costs, it would be better off telling its workers to stay home (profit maximizing Q = zero

  • In the short run, the shutdown point is equal to

    • Minimum point on the ATC curve

    • Maximum point on the ATC curve

    • Minimum point on the AVC curve

    • Maximum point on the AVC curve

    • Minimum point on the MC curve


D remember mr d ar p

D – remember MR=D=AR=P ??

  • The demand curve for a typical firm operating under perfect competition is

    • Upward sloping

    • Downward sloping

    • Perfectly vertical

    • Perfectly horizontal

    • Concave to the origin


C p does not equal min avc if there are any fixed costs at all

C – P does not equal min. AVC if there are any fixed costs at all.

  • Which of the following is NOT typically true for the perfectly competitive firm in the long run?

    • P = Minimum ATC

    • P = Marginal Revenue

    • P = Minimum AVC

    • P = Marginal Cost

    • The firm earns a normal profit


D c s willingness to pay minus what you actually pay

D – C.S. = willingness to pay MINUS what you actually pay

  • Consumer surplus is

    • The price of a good divided by its marginal utility

    • The marginal utility of a good divided by its price

    • The total utility of the good

    • The difference between what the good is worth to the consumer and its market price

    • Consumers’ annual savings


A ps1 4 5 million b ps2 2 million c dwl 1 million d gr 4 million

(a) PS1 = $4.5 million(b) PS2 = $2 million(c) DWL = $1 million(d) GR = $4 million

  • Given this $2 per unit tax, calculate the following:

    (a) PS before the tax

    (b) PS after the tax

    (c) DWL

    (d) Total Gov’t Revenue


E if mu p for each is equal and you spent all your money you have maximized

E – if MU/P for each is equal, and you spent all your money, you have maximized

  • The utility maximizing rule is to choose the combination of goods that …

    • Has the highest marginal utility of each good in the basket.

    • Has the lowest prices for the goods

    • Has the greatest difference between marginal utility and price

    • The marginal utility over price for each good is equal.

    • The marginal utility over price for each good is equal, within the budget constraint.


C a b

C … A … B

  • Copy this graph, and label the following with the given letter

    • Constant Returns to Scale

    • Diseconomies of Scale

    • Economies of Scale


A specialization division of labor b becoming too large management bureaucratic issues

A. specialization/division of laborB. Becoming TOO large, management/bureaucratic issues

  • Give one possible cause your firm could experience:

    • Economies of Scale

    • Diseconomies of Scale


C the other options could happen but mu will decrease after the first unit for almost all goods

C – the other options COULD happen… but MU will decrease after the first unit for almost all goods.

  • According to the principle of diminishing marginal utility, as you increase the quantity consumed…

    • Marginal utility stays the same

    • Total utility stays the same

    • Marginal utility decreases

    • Marginal utility and total utility both decrease

    • Total utility declines


Atc avc afc

ATC – AVC = AFC

  • At any given output level, on a firm graph, the vertical difference between ATC and AVC is equal to what?


Review powerpoint chapters 7 9

NOTHING. They could be earning an economic profit, a normal profit, or an economic loss.All you know is that they are covering their explicit costs.

  • If a firm is earning an accounting profit, what do you know must be true about the firm’s economic profit?


Right edge of profit box are mc mr carry that straight down up to atc

Right edge of PROFIT box are:MC=MRcarry that straight down/up to ATC

  • Draw a side-by-side graph for perfectly competitive Industry/Firm earning short run profits.

    • What two points are used to define the right edge of the PROFIT box?


Right edge of loss box are mc mr carry that straight down up to atc

Right edge of LOSS box are:MC=MRcarry that straight down/up to ATC

  • Draw a side-by-side graph for perfectly competitive Industry/Firm earning a short run loss.

    • What two points are used to define the right edge of the LOSS box?


Productive no allocative yes

Productive: NOAllocative: YES

  • In the short run, a perfectly competitive firm without government intervention will ALWAYS achieve:

    • Productive Efficiency?

    • Allocative Efficiency?

      Yes or no.


5 utils 5 utils per dollar cannot determine dollars vs utils

5 utils5 utils per dollarcannot determine – dollars vs. utils

  • If tacos cost $2 each, Identify the following:

  • MU for the 4th taco

  • MU/P for the 3rd taco

  • How many tacos will this consumer choose to purchase?


Because as soon as mc is above atc atc must be increasing due to adding the higher marginal

BECAUSE as soon as MC is above ATC, ATC must be increasing (due to adding the higher marginal).

  • Why must the Marginal Cost curve ALWAYS intersect ATC and AVC at their minimums?


Explicit paid out of pocket implicit value of forgone resources

Explicit – paid out of pocketImplicit – value of forgone resources

  • If you open a McDonald’s Franchise, list (a) two expenses that would be considered EXPLICIT costs, and two expenses that would be considered IMPLICIT costs.


A decrease b decrease c decrease d increase exist

A. decrease, B. decrease, C. decrease, D. increase/exist

  • If the government imposes a tax on the production of pencils, what will happen to each of the following?

    (increase or decrease)

    • Price sellers receive

    • Quantity of pencils sold

    • Consumer surplus

    • DeadWeightLoss (DWL)


A decrease b increase c increase d increase exist

A. decrease, B. increase, C. increase, D. increase/exist

  • If the government imposes a subsidy on milk, what will happen to each of the following?

    (increase or decrease)

    • Price paid by the buyers

    • Quantity of milk produced

    • Producer Surplus

    • DeadWeightLoss (DWL)


All costs are variable in the lr only labor is variable in the sr

All costs are variable in the LR, only Labor is variable in the SR.

  • How are costs different in the LONG RUN different than the SHORT RUN?


Capital goods since they are used to produce more goods stuff to make more stuff

Capital goods, since they are used to produce more goods. (“stuff to make more stuff”)

  • Which is more likely to promote future economic growth?

    • Investment in more capital goods

    • Investment in more consumer goods

      WHY?


50 25 2 0 positive means substitutes

50% / 25% … +2.0 … positive means substitutes

  • If the price of frosted flakes increases from $4 to $5 per box, and as a result the quantity demanded of a DIFFERENT good (X)increases from 20 million to 30 million …

    • Calculate the cross elasticity of demand for good X with respect to Frosted Flakes.

    • What does this tell you about how these goods are related?


Review powerpoint chapters 7 9

Firms will enter or exit because of low/no barriers to entry… so supply shifts, moving MR=D=AR=P, eliminating profit/loss in LR

  • WHY is it impossible for a perfectly competitive firm to earn a profit or loss in the long run?

  • Yes, they are a price taker, and Mr. Meier says so… but what actually CHANGES in the LR to eliminate SR profits or losses??


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