be careful to recognize when it is an input problem
TRANSCRIPT
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Be careful
to recognize
when it is
an INPUT problem
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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.
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If MR > 0 … Elastic … TR still increasing
If MR = 0 … Unit Elastic … TR is maximized
If MR < 0 … Inelastic … TR is decreasing
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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
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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
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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
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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)
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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?
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Can you instantly spot…
Allocative Efficient Socially Optimal
Productive Efficient Fair Return Price
P=MC P=MC
P=ATCmin P=ATC
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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)