AP Micro Unit 4

AP Microeconomics unit 4 study guide

Perfect Competition

-Homogeneous products

-Large number of producers

-Price taker

-Easy entry/exit

-Independently acting sellers

-Perfectly elastic

-Produce at MR=MC

Monopoly

-Produces a product that has no close substitutes

-No entry/exit

-Single seller

-Inelastic

-Regulated by government

-Has control over price (price maker)

-Produces at MR=MC

Monopolistic Competition

-Differentiated produces

-Highly competitive

-Easy entry/exit

-Large number of buyers/sellers

-Non-price competition

-Price makers

-Elastic

-Produces at MR=MC

Oligopoly

-Homogeneous and differentiated products

-Few large producers

-Firms set price

-Mutual interdependence

-Produces at MR=MC

Profit maximizing quantity

In perfect competition

-Go to where MC touches Price

In monopolistic competition

-Go to where MC=MC then move up to demand line

Total Revenue

-Price times Quantity

Total Cost

ATC times quantity

Per unit profit

P-ATC

Total Profit

TR-TC

Fair return price

P=ATC

(demand is equal to price)

Socially Optimal price

P=MC

(demand is equal to price)

Allocative efficiency

-Perfect competition

-P=MC

-Firm is producing the best price and quantity

Productive efficiency

-P=Minimum ATC

-Producing the maximum amount of goods with the least amount of resources

Game theory

-Only for oligopoly

-The study of strategic interactions among economic agents