1. The document covers various microeconomics concepts including price elasticity of demand, production costs, profit maximization, market structures, and resource markets. 2. Key graphs show the relationships between marginal revenue and marginal cost in determining profit-maximizing output for different market structures like perfect competition, monopoly, and oligopoly. 3. Labor market graphs illustrate the equilibrium wage rate and employment level under conditions of perfect competition and monopsony.

1. AP MICRO REVIEW

2. Q% d% PPRICE ELASTICITY OF DEMANDCommonly Expressed as…The percentage change in quantityPThe percentage change in priceP2P1Elasticity is .5DQQ1Q2

3. PRICE ELASTICITY & TOTAL REVENUETotal revenue riseswith price to a point...then declinesPTRUnitElasticElasticDemandInelasticDemandDElasticDemandInelasticDemandQQuantity Demanded

4. MU of product BMU of product APrice of APrice of B16 Utils8 Utils=$1$2UTILITY MAXIMIZING COMBINATIONAlgebraic Restatement of theUtility Maximization Rule=

5. SHORT-RUN COSTS GRAPHICALLYMCPlotting Average andMarginal CostsATCAVCCosts (dollars)AFCQuantity

6. ECONOMIC COSTSEconomicProfitAccountingProfitImplicit costs(including anormal profit)Accountingcosts (explicitcosts only)ExplicitCostsProfits to anEconomistProfits to anAccountantTOTALREVENUEEconomic (opportunity) Costs

7. SHORT-RUN PRODUCTIONRELATIONSHIPS Law of Diminishing ReturnsTotal ProductTotal Product, TPIncreasingMarginalReturnsQuantity of LaborAverage Product, AP, andMarginal Product, MPAverageProductMarginalProductQuantity of Labor

8. SHORT-RUN PRODUCTIONRELATIONSHIPS Law of Diminishing ReturnsTotal ProductTotal Product, TPDiminishingMarginalReturnsQuantity of LaborAverage Product, AP, andMarginal Product, MPAverageProductMarginalProductQuantity of Labor

9. SHORT-RUN PRODUCTIONRELATIONSHIPS Law of Diminishing ReturnsTotal ProductTotal Product, TPNegativeMarginalReturnsQuantity of LaborAverage Product, AP, andMarginal Product, MPAverageProductMarginalProductQuantity of Labor

10. ECONOMIES ANDDISECONOMIES OF SCALEDiseconomiesof scaleConstant returnsto scaleEconomiesof scaleUnit Costslong-run ATCOutput

11. MARGINAL REVENUE-MARGINAL COST APPROACHProfit Maximization Position$200150100 50 0Economic ProfitMCMR$131.00ATCCost and RevenueAVC$97.78 1 2 3 4 5 6 7 8 9 10

12. MR = MCOptimumSolutionMARGINAL REVENUE-MARGINAL COST APPROACHProfit Maximization Position$200150100 50 0Economic ProfitMCMR$131.00ATCCost and RevenueAVC$97.78 1 2 3 4 5 6 7 8 9 10

13. MARGINAL REVENUE-MARGINAL COST APPROACHLoss Minimization Position$200150100 50 0Economic LossMCATCCost and RevenueAVC$91.67MR$81.00 1 2 3 4 5 6 7 8 9 10

14. MARGINAL REVENUE-MARGINAL COST APPROACHShort-Run Shut Down Point$200150100 50 0MCATCCost and RevenueAVCMR$71.00Minimum AVCis the Shut-DownPoint 1 2 3 4 5 6 7 8 9 10

15. PURE COMPETITION AND EFFICIENCYProductive EfficiencyPrice = Minimum ATCAllocative EfficiencyPrice = MCUnderallocationPrice > MCOverallocationPrice < MC

16. MONOPOLY REVENUES & COSTSInelasticElastic$200150200 50Inelastic PortionMR is NegativeDollarsA Monopolist will always operate on the Elastic Portion of the Demand CurveMRDQ0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18$750500250DollarsTRQ0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

17. OUTPUT AND PRICE DETERMINATION20017515012510075 5025Price, costs, and revenueQ0 1 2 3 4 5 6 7 8 9 10Profit Maximization Under Monopoly Remember the MR=MC Rule?ProfitPer UnitMC$122ProfitATC$94DMR = MCMR

18. INEFFICIENCY OF PURE MONOPOLYAn industry in pure competitionsells where supply anddemand are equalPS = MCAt MR=MCA monopolistwill sell lessunits at ahigher pricethan incompetitionPmPcDMRQQcQm

19. MONOPOLISTIC COMPETITIONAND EFFICIENCYPrice is Not= MinimumATCPrice  MCMCLong-Run EquilibriumATCP3= A3Price and CostsDMRQ3Quantity

20. OLIGOPOLY BEHAVIORHighLowAB$12$15High$12$6DC$6$8Low$8$15A Game-Theory OverviewRareAir’s Price StrategyUptown’s Price Strategy

21. HighLowAB$12$15High$12$6DC$6$8Low$8$15OLIGOPOLY BEHAVIORA Game-Theory OverviewRareAir’s Price StrategyGreatestCombinedProfitUptown’s Price Strategy

22. HighLowAB$12$15High$12$6DC$6$8Low$8$15OLIGOPOLY BEHAVIORA Game-Theory OverviewRareAir’s Price StrategyIndependentActionsStimulateResponseUptown’s Price Strategy

23. HighLowAB$12$15High$12$6DC$6$8Low$8$15OLIGOPOLY BEHAVIORA Game-Theory OverviewRareAir’s Price StrategyIndependentActionsStimulateResponseUptown’s Price StrategyGravitatingto theWorst Case

24. HighLowAB$12$15High$12$6DC$6$8Low$8$15OLIGOPOLY BEHAVIORA Game-Theory OverviewRareAir’s Price StrategyIndependentActionsStimulateResponseUptown’s Price StrategyGravitatingto theWorst Case

25. OLIGOPOLY BEHAVIORHighLowAB$12$15High$12$6DC$6$8Low$8$15A Game-Theory OverviewRareAir’s Price StrategyCollusionInvites aDifferentSolution.Uptown’s Price Strategy

26. HighLowAB$12$15High$12$6DC$6$8Low$8$15OLIGOPOLY BEHAVIORA Game-Theory OverviewRareAir’s Price StrategyCollusionInvites aDifferentSolution.But, theincentiveto cheatis very real.Uptown’s Price Strategy

27. MarginalResourceCostChange in Total (Resource) CostUnit change in Resource Quantity=MARGINAL PRODUCTIVITYTHEORY OF RESOURCE DEMANDRule for Employing Resources:MRP = MRC

28. MP of CapitalMP of LaborPrice of CapitalPrice of LaborMRPCMRPL1PCPLOPTIMUM COMBINATIONOF RESOURCESLeast-Cost RuleLeast-Cost Combination of ResourcesProfit-Maximizing Combination

29. PURELY COMPETITIVE LABORMARKET EQUILIBRIUMNon-LaborCostsWage Rate (dollars)Quantity of LaborQuantity of LaborSIncludesNormalProfitS = MRCWc($10) $10 $10 $10 $10 $10 $10WcLaborCostsD = MRP( mrp’s)d = mrp(1000)(5)Individual FirmLabor Market

30. MONOPSONISTICLABOR MARKETMRCSThe competitivesolution wouldresult in a higherwage and greateremployment.Wage Rate (dollars)WcWmMRPQmQcQuantity of Labor

31. OPTIMAL AMOUNT OF A PUBLIC GOODP$ 9 7 5 3 1SYields theoptimum amountof the public goodMB = MCDCQ0 1 2 3 4 5

32. COST-BENEFIT ANALYSISMarginal Cost = Marginal Benefit RuleExternalitiesSpillover CostsOverallocationSpillover BenefitsUnderallocation