AP/IB Economics
Mankiw Chapter 13: The Costs of Production
Guided Outline Textbook Pages 267-270
Main Ideas
Distinguish between total
revenue and total costs. How
is profit calculated?
What is a rational firm’s main
objective?
Explain the difference
between opportunity costs,
explicit costs, and implicit
costs. Do not just write the
definitions. Give examples of
each.
What is the difference
between how economists and
accountants measure total
costs?
Notes, definitions, examples, diagrams, formulas
Main Ideas
Distinguish between economic
profit and accounting profit.
Do not just write the
definitions.
What is the difference
between how economists and
accountants measure profit?
Why is it important to study
“economic profit”?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
Mankiw Chapter 13: The Costs of Production
Guided Outline Textbook Pages 271-279
Main Ideas
Draw the production function.
What does this graph tell us
about marginal product as we
hire additional workers?
Why does diminishing marginal
product occur?
Explain the difference
between fixed costs and
variable costs. Do not just
write the definitions. Give
examples of each.
Notes, definitions, examples, diagrams, formulas
Main Ideas
Label the graph showing
typical cost curves. Then
draw it again on your own in
the space to the right. Add
the AFC curve.
Why does marginal cost
eventually rise?
Why does average fixed cost
always fall?
What is the graphical
relationship between the
average cost curves and the
marginal cost curve?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
Mankiw Chapter 13: The Costs of Production
Guided Outline Textbook Pages 280-283
Main Ideas
Explain how economists
distinguish between the shortrun and the long-run.
Draw and label a graph
showing the short- and longrun cost curves.
What are “economies of
scale”? Why do they occur?
What are “diseconomies of
scale”? Why do they occur?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
Mankiw Chapter 14: Firms in Competitive Markets
Guided Outline Textbook Pages 289-300
Main Ideas
Notes, definitions, examples, diagrams, formulas
What are the three
characteristics of a perfectly
competitive market?
Because of these characteristics, buyers and sellers are
in perfect competition.
Because perfectly competitive
firms are price takers, that
means that three different
quantities are all the same.
What are they?
What is the goal of a
competitive firm?
What is the profit maximizing
rule for a competitive firm?
What curve represents the
competitive firm’s supply
curve?
What curve represents the
competitive firm’s demand
curve?
For perfect competition:
=
=
Main Ideas
Shade the rectangle of profit
for this perfectly competitive
firm.
What kind of profit situation
does this graph represent?
Shade the rectangle of loss
for this perfectly competitive
firm.
What will this perfectly
competitive firm do? Why?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
Mankiw Chapter 14: Firms in Competitive Markets
Guided Outline Textbook Pages 300-306
Main Ideas
Notes, definitions, examples, diagrams, formulas
Describe the long-run
situation of firms in a market.
Firms are free to
Firms have the same access to
and
Firms have the same
Describe how firms decide to
enter a market or exit a
market
If firms in the market are
, then that is
an incentive for more firms to enter the market.
If firms in the market are
, then that is
an incentive for some firms to exit the market.
So, in long-run equilibrium, all firms in the market are making
.
Why do competitive firms
stay in business if they make
zero economic profit?
At what point on the ATC
curve to all firms operate in
long-run equilibrium? Why is
this important for economics
and the chief problem of
scarcity?
Main Ideas
Notes, definitions, examples, diagrams, formulas
Explain how a short-run
increase in demand eventually
leads to a new long-run
equilibrium
0. The market begins in long-run equilibrium, with each firm
earning
and producing at minimum
1.
An increase in demand
price.
2. So firms in the market earn
.
3. This is an incentive for
…
4. …which shifts the
5. This
to the
price and
.
profit…
6. …restoring long-run equilibrium, with each firm earning
and producing at minimum
Market
Draw side-by-side graphs of
the market and firm for
perfect competition in longrun equilibrium.
Firm