AP MICROECONOMICS UNIT #3 THE FIRM

GEORGIA PERFORMANCE STANDARDS IN THIS UNIT SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. a. Compare and contrast three forms of business organizationsole proprietorship, partnership, and corporation. b. Explain the role of profit as an incentive for entrepreneurs. c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition. COLLEGE BOARD STANDARDS IN THIS UNIT I. Basic Economic Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (814%) F. Marginal analysis II. The Nature and Functions of Product Markets. . . . . . . . . . . . . . .. (5570%) C. Production and costs (1015%) 1. Production functions: short and long run 2. Marginal product and diminishing returns 3. Short-run costs 4. Long-run costs and economies of scale 5. Cost minimizing input combination D. Firm behavior and market structure (2535%) 1. Profit: a. Accounting versus economic profits b. Normal profit c. Profit maximization: MR=MC rule 2. Perfect competition a. Profit maximization b. Short-run supply and shutdown decision c. Behavior of firms and markets in the short run and in the long run d. Efficiency and perfect competition 3. Monopoly a. Sources of market power b. Profit maximization c. Inefficiency of monopoly d. Price discrimination e. Natural monopoly 4. Oligopoly a. Interdependence, collusion, and cartels b. Game theory and strategic behavior 5. Monopolistic competition 1

a. Product differentiation and role of advertising b. Profit maximization c. Short-run and long-run equilibrium d. Excess capacity and inefficiency
READING ASSIGNMENTS 1. Chapter 20: pp. 378-384. 2. Chapter 20: pp. 384-389. 3. Chapter 20: pp. 389-396. 4. Chapter 21: pp. 399-409. 5. Chapter 21: pp. 409-420. LECTURES 1. The Production Function. 2. Costs in the Short-Run. 3. Costs in the Long-Run. 4. Introduction to Perfect Competition. 5. Short-Run and Long-Run Per. Comp. 6. Efficiency of Perfect Competition. 6. 7. 8. 9. Chapter 22: Chapter 22: Chapter 23: Chapter 23: pp. pp. pp. pp. 423-436. 436-441. 444-450. 451-464.

7. 8. 9. 10. 11. 12.

Introduction to Monopoly. Monopoly Charts/Graphs. Inefficiency of Monopoly/Regulation. Monopolistic Competition. Oligopoly #1. Oligopoly #2.

WORKSHEETS 1. Business organizations graphic organizer. 2. Multiple handouts on production and cost figures. 3. Activity 30: Market Structures. 4. Activity 43: Review of P.C. and Monopoly. 5. Activity 44: Monopolistic Competition. 6. Activity 46: Kinked Demand Curve of Oligopoly. PROJECTS TBA UNIT GRAPHS See handout REFLECTION PAPERS See handout QUIZZES 1. Production Function. 9. Natural/regulated and 2. Basics of Cost. price discriminating mon. 3. Revenue/Cost/Profit for Perfect Competition. 10. Monopolistic competition. 4. Computing Revenue/Cost/Profit from Graphs. 11. Oligopoly demand curve. 5. Perfect Competition Summary. 12. Game theory/prisoners 6. Basics of Monopoly. dilemma for oligopoly. 7. Monopoly graph interpret.

TEST PRACTICE 1. Sample Multiple Choice. 2. Sample Free Response.

TESTS Unit Test #3 OBJECTIVES

1. Explain the relationship between marginal cost and marginal product and marginal cost and AVC and ATC. 2. List and analyze the differences between the four major market structures. 3. Explain the tendency towards break-even in the long-run in perfect competition. 4. Explain the barriers to entry that exist and keep competitors out of industries controlled by a monopoly. 5. Explain the gap between marginal revenue and price in noncompetitive markets. 6. Explain how elasticity of the demand curve determines output and pricing in a monopoly. 7. Analyze why noncompetitive market structures are less efficient than perfect competition. 8. Identify and analyze pricing problems associated with an oligopoly.

VOCABULARY
economic cost explicit cot implicit cost normal profit economic profit total product (TP or Q) Marginal product (MP) Average product (AP) Law of diminishing returns fixed costs (TFC) variable costs (TVC) total cost (TC) Average fixed cost (AFC) Average Variable Cost (AVC) Average Total Cost (ATC) Marginal Cost (MC) economies of scale constant returns to scale diseconomies of scale natural monopoly perfect competition monopolistic competition oligopoly monopoly price taker price maker average revenue (AR) marginal revenue (MR) total revenue (TR) break-even point shut-down point MR=MC rule Increasing-cost industry Constant-cost industry Decreasing-cost industry productive efficiency allocative efficiency deadweight loss X-inefficiency rent-seeking price discrimination perfectly discriminating monopolist fair-return pricing marginal cost pricing nonprice competition excess capacity homogeneous oligopoly differentiated oligopoly mutual interdependence concentration ratio Herfindhal index game theory collusion kinked demand curve cartel

GRAPH/CHART/APPLICATION SKILLS
1. 2. 3. 4. 5. Compute marginal product and average product from a table and a graph. Compute TFC, TVC, TC, AFC, ATC, and MC from a table and from a graph. Identify cost and production curves on a graph. Interpret long-run ATC graphs. Compute price, quantity, total revenue, average revenue, and marginal revenue from a table and a graph for all market structures. 6. Identify profit, break-even, loss, and shutdown from total cost/total revenue curves and from average cost/average revenue curves from all market structures. 7. Determine the profit-maximizing output level in all four market structures.

8. Analyze how changes in the industry of a product changes cost and revenue for the firms in that industry (in all market structures). 9. Identify different output and price levels for a monopoly under government regulation. 10. Identify the deadweight loss from a monopoly on a graph. 11. Compute and analyze Herfindhal index figures for different industries. 12. Interpret a profit payoff matrix for an oligopoly. 13. Interpret the kinked demand curve of an oligopoly.