AP Econ – Micro Review
Housekeeping
 Bring books to class.
 Morning review sessions – 7:15-7:45
 Current event assignment - Thursday
Overview
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Elasticity – DWL
Profit & Pure Competition
Monopoly & Oligopoly
Factor Markets
Market Failure
Market failure FRQ
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Mark
David
Marvin
Yucin
Christina
Also – pollution homework Rahul and Ashwini
Today
 Self assessment in micro concepts.
 Return & review comparative advantage quiz.
 Work on elasticity and DWL
Student Review
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Income and substitution effects
Price elasticity
Determinants of price elasticity
Income elasticity – normal and inferior goods
Cross price elasticity – complements & substitutes
Supply elasticity - determinants of supply elasticity
Elasticity problems
Summary
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Elastic vs. inelastic parts of demand curve
Elasticity and firm revenue
Cross price – complements vs. substitutes
Income elasticity – inferior vs. superior.
Producer and consumer surplus
DWL under tax or quota
AP Econ – Micro Review
Day 2 – Profit and Pure Competition
Do Now
 Create an example of an accounting profit.
 Expand the example to show an economic
profit.
Individual Practice
 Graph a firm under pure competition showing
a short term profit.
 Graph firm under pure competition in the
long-run.
Mid-Term Info
 Thursday 2/6
 12:30 to 2:00 p.m.
 Period 3 – Room D265
 Period 5 – Room D264
Reminder
 Test reviews
 C 250
 7:15 – 7:45 a.m.
 2:45 – 3:30 p.m.
 Bring competition, monopoly, oligopoly,
and factor tests.
Profit and Pure Competion
 Do problems
Summary
 Accounting vs. economic profits (opportunity
cost)
 Normal economic profit
 Optimal output rule: MR=MC
 Lowest cost output: ATC at min.
Summary
 Shutdown price: P<AVC
 Breakeven price: P=ATC
 Long run equilibrium under pure competition:
P=MC=ATC
 Productive and allocative efficiency
AP Econ – Micro Review
Day 3 – Monopoly and Oligopoly
Mid-Term Info
 Thursday 2/6
 12:30 to 2:00 p.m.
 Period 3 – Room D265
 Period 5 – Room D264
Reminder
 Test reviews
 C 250
 7:15 – 7:45 a.m.
 2:45 – 3:30 p.m.
 Bring competition, monopoly, oligopoly,
and factor tests.
Review Pure Competition FRQ
Summary
 Accounting vs. economic profits (opportunity
cost)
 Normal economic profit
 Optimal output rule: MR=MC
 Lowest cost output: ATC at min.
Summary
 Shutdown price: P<AVC
 Breakeven price: P=ATC
 Long run equilibrium under pure competition:
P=MC=ATC
 Productive and allocative efficiency
Class Relay
Industry structure matrix
 # of firms
 Uniform or differentiated
 Price make or taker
 Non-price competition
 Long-term profitability – excess or normal
Review Monopoly FRQ
Oligopoly & Monopolistic
Compeption Problems
Student Summary
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Monopoly pricing and elasticity
Monopoly regulation
Oligopoly – Cournot vs. Bertrand
Oligopoly – strategic behavior
Monopolistic competition – shortterm
6. Monopolistic competition – long-term
Summary - Monopoly
 Monopoly MR=MC
 Price on elastic part of the demand curve
 Regulate to MC=P unless there is a loss.
 If loss, “fair return price” = ATC = normal
profit
Summary - Oligopoly
 Oligopoly – collusion or competition
 Collusion similar to monopoly
 Competition similar to pure competition
 Game theory
 Nash equilibrium (non-cooperation)
 Prisoners dilemma (perils of cooperation)
 Strategic behavior – tit for tat, price leadership.
Summary – Monopolistic Comp
 Differentiation = downward sloping demand
 Long-term equilibrium ATC = P = normal profit
 Not allocatively efficient. P>MC
 Not productively efficient – excess capacity.
Cramer on Oligopoly
Oligopoly
AP Econ – Micro Review
Day 4 – Factor Markets
Mid-Term Info
 Thursday 2/6
 12:30 to 2:00 p.m.
 Period 3 – Room D265
 Period 5 – Room D264
Summary - Monopoly
 Monopoly MR=MC
 Price on elastic part of the demand curve
 Regulate to MC=P unless there is a loss.
 If loss, “fair return price” = ATC = normal
profit
Summary - Oligopoly
 Oligopoly – collusion or competition
 Collusion similar to monopoly
 Competition similar to pure competition
 Game theory
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Dominant strategy (works in all scenarios)
Nash equilibrium (non-cooperation)
Prisoners dilemma (perils of cooperation)
Strategic behavior – tit for tat, price leadership.
Summary – Monopolistic Comp
 Differentiation = downward sloping demand
 Long-term equilibrium ATC = P = normal profit
 Not allocatively efficient. P>MC
 Not productively efficient – excess capacity.
Factor Markets – Major Ideas
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Optimal mix
Profit maximizing mix
Pure competition model
Monopoly model
Monopsony model
Income inequality
Factor Markets Problems
More FRQs
Final Exam Review
61 points total
11 points for FRQ
50 points for MC
+ 2 point adjustment to points earned.