Mr. Maurer
AP Economics
Review for Unit 3 Multiple Choice Test
Chapter 9
1. What is the relationship between average fixed cost, average variable cost, and average total cost?
2. Define “economies of scale” and know what that means for long-run average total costs for a firm.
3. Given average variable cost at a particular output level, calculate total variable cost.
4. Given a change in total variable cost when output is increased one unit, calculate the marginal cost of the
last unit produced.
5. Explain why the marginal cost curve first decreases and then increases. What does that say about the
marginal product of additional units of labor (or any other variable input)?
6. Where does the marginal cost curve intersect the average variable cost curve and average total cost curve?
Why?
7. Define “increasing returns to scale.” What will be happening to long-run average total cost if a firm is
experiencing “increasing returns to scale?”
8. If marginal product is falling, what is happening to marginal cost?
Chapters 10 & 11
9. Identify and explain the shut-down price for a firm. What happens if price is above the shut-down price
but below average total cost?
10. Identify the characteristics of perfectly competitive markets.
11. If price is greater than marginal cost, how can efficiency be improved?
12. Describe the demand curve for a perfectly competitive firm.
13. What effect will an increase in demand have on the long-run equilibrium price in a perfectly competitive
industry? How about on long-run quantity produced? A decrease in demand?
14. What does it mean that a perfectly competitive firm is a “price taker?”
15. What’s that rule about marginal cost and marginal revenue again? Should you be distracted, dissuaded, or
bamboozled away from that answer?
16. How do you calculate economic profit?
17. What is the relationship between price, demand, and marginal revenue for a perfectly competitive firm?
18. How does a perfectly competitive industry adjust to short-run profits or losses? (Explain both.)
19. Be able to draw a graph of a perfectly competitive firm in equilibrium, with accurate depiction of
demand, price, marginal revenue, and average total cost.
Chapter 12
20. Given a graph of a monopoly, identify: profit, consumer surplus, deadweight loss, socially optimal level
of output, socially optimal price, allocatively efficient levels of production and price, price at productive
efficiency.
21. Be able to do all of the above and differentiate between a monopoly that is charging a single-price and
one that is practicing perfect price discrimination.
21. Given a graph of a monopoly, identify the output level and price if the firm were perfectly competitive.
22. Explain the relationship between a natural monopoly, economies of scale, and long-run average total
cost.
Chapter 13
23. Why are long-run economic profits zero in monopolistic competition?
24. Why are the output level and price in monopolistic competition inefficient?
25. Identify the characteristics of a monopolistically competitive industry.
26. Identify the characteristics of oligopoly.
27. What is game theory? In what type if industry is it used?
28. Know how to determine the probable outcomes using a payoff matrix.
29. If two or more oligopolistic firms form practice collusion, at what level will they fix prices?