Review PowerPoint Chapters 7-9

1. Review PowerPointChapters 7-9 AP Microeconomics Mr. Meier Penn Manor HS

2. Test 1-9 estimated Breakdown Unit 1 (~3 questions) Unit 2 (~3-4 questions) Unit 3 (~12-14 questions) Unit 4 (~20-24 questions)

3. 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

4. MCcurve above the Shutdown Point • A firm’s short run supply curve is equivalent to its _________________ above _________________.

5. 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

6. 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

7. 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

8. 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)

9. 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

10. 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

11. 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?

12. 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…

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. (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

23. 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.

24. C … A … B • Copy this graph, and label the following with the given letter • Constant Returns to Scale • Diseconomies of Scale • Economies of Scale

25. 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

26. 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

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

28. 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?

29. 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?

30. 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?

31. Productive: NOAllocative: YES • In the short run, a perfectly competitive firm without government intervention will ALWAYS achieve: • Productive Efficiency? • Allocative Efficiency? Yes or no.

32. 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?

33. 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?

34. 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.

35. 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)

36. 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)

37. 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?

38. 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?

39. 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?

40. 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??