AP MICROECONOMICS UNIT #3THE FIRM

GEORGIA PERFORMANCE STANDARDS IN THIS UNIT

SSEMI4 The student will explain the organization and role of business and analyzethe four types of market structures in the U.S. economy.a. Compare and contrast three forms of business organization—sole 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8–14%)

F. Marginal analysisII. The Nature and Functions of Product Markets. . . . . . . . . . . . . . .. (55–70%)

C. Production and costs (10–15%)1. Production functions: short and long run2. Marginal product and diminishing returns3. Short-run costs4. Long-run costs and economies of scale5. Cost minimizing input combination

D. Firm behavior and market structure (25–35%)1. Profit:

a. Accounting versus economic profitsb. Normal profitc. Profit maximization: MR=MC rule

2. Perfect competitiona. Profit maximizationb. Short-run supply and shutdown decisionc. Behavior of firms and markets in the short run and in the long rund. Efficiency and perfect competition

3. Monopolya. Sources of market powerb. Profit maximizationc. Inefficiency of monopolyd. Price discriminatione. Natural monopoly

4. Oligopolya. Interdependence, collusion, and cartelsb. Game theory and strategic behavior

5. Monopolistic competition

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a. Product differentiation and role of advertisingb. Profit maximizationc. Short-run and long-run equilibriumd. Excess capacity and inefficiency

READING ASSIGNMENTS1. Chapter 20: pp. 378-384. 6. Chapter 22: pp. 423-436.2. Chapter 20: pp. 384-389. 7. Chapter 22: pp. 436-441.3. Chapter 20: pp. 389-396. 8. Chapter 23: pp. 444-450.4. Chapter 21: pp. 399-409. 9. Chapter 23: pp. 451-464.5. Chapter 21: pp. 409-420.

LECTURES1. The Production Function. 7. Introduction to Monopoly.2. Costs in the Short-Run. 8. Monopoly Charts/Graphs.3. Costs in the Long-Run. 9. Inefficiency of Monopoly/Regulation.4. Introduction to Perfect Competition. 10. Monopolistic Competition.5. Short-Run and Long-Run Per. Comp. 11. Oligopoly #1.6. Efficiency of Perfect Competition. 12. Oligopoly #2.

WORKSHEETS1. 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 and2. 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/prisoner’s 6. Basics of Monopoly. dilemma for oligopoly.7. Monopoly graph interpret.

TEST PRACTICE1. Sample Multiple Choice.

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2. Sample Free Response.

TESTSUnit Test #3OBJECTIVES

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 economies of scale productive efficiencyexplicit cot constant returns to scale allocative efficiencyimplicit cost diseconomies of scale deadweight lossnormal profit natural monopoly X-inefficiencyeconomic profit perfect competition rent-seekingtotal product (TP or Q) monopolistic competition price discriminationMarginal product (MP) oligopoly perfectly discriminating Average product (AP) monopoly monopolistLaw of diminishing returns price taker fair-return pricingfixed costs (TFC) price maker marginal cost pricingvariable costs (TVC) average revenue (AR) nonprice competitiontotal cost (TC) marginal revenue (MR) excess capacityAverage fixed cost (AFC) total revenue (TR) homogeneous oligopolyAverage Variable Cost (AVC) break-even point differentiated oligopolyAverage Total Cost (ATC) shut-down point mutual interdependenceMarginal Cost (MC) MR=MC rule concentration ratio

Increasing-cost industry Herfindhal index Constant-cost industry game theory Decreasing-cost industry collusion

kinked demand curvecartel

GRAPH/CHART/APPLICATION SKILLS1. Compute marginal product and average product from a table and a graph.2. Compute TFC, TVC, TC, AFC, ATC, and MC from a table and from a graph.3. Identify cost and production curves on a graph.4. Interpret long-run ATC graphs.5. 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.

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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.

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