AP Microeconomics 3.5, 3.6, and 3.7 Profit maximization
Multiple Choice
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14 Terms
marginal cost
additional cost from producing an additional unit
marginal revenue
additional revenue from the sale of an additional unit
MR is the
price
Profit maximizing rule
MR=MC
profit maximizing quantity in graph
intersection of MC and MR
If the price is greater than ATC it means that
the firm is profiting
If the price is less than ATC but greater than AVC it means that
the firms is losing but should NOT shut down
If the price is les than ATC and AVC it means that
the firm is losing and should shut down
profit formula
TR-TC ; tr=mr times q
sunk cost
cost that has already been incurred and therefore should not play into the decision making process
Perfect competition has
many firms
identical products
price takers
no barriers
perfect competition on a graph: price
set by market
perfect competition on a graph: set dotted line to
MR=D=AR=P
perfect competition on a graph: firms will produce where
MR=MC
