Principles of Microeconomics, ECO 284 Study Guide for Third Exam
Note that a practice quiz is available here for chapter nine. You may also want to study from the old version of exam three, and the questions from chapters eight and nine that were included in the study guide for exam two. Of course, you will mainly want to prepare from your notes, text, and Aplia homework assignments. Use the practice quizzes to test your level of preparation.
All three sections will have a 75-minute exam. For our first two exams, there were 60 questions. This will also be the format for our third exam. In addition to an understanding of supply, demand, elasticity and utility, you will be asked to demonstrate your understanding of the following concepts:
Review Chapter Seven, Production & Cost: normal profits as a production cost -- explicit and implicit costs, economic profit, accounting profit. Know the meaning of plants, firms, and industries.
Short run (at
least one fixed resource): Total product of the (typical) firm = q = firm’s
output (& what will cause TP to shift), Average Product, AP=q/L, Marginal
Product, MPL =
Dq/DL, diminishing marginal
returns (diminishing MPL), average-marginal rule, Total Cost, TC =
FC+ VC, where FC=Fixed Cost (costs that do not vary with the firm’s output,
q),Variable Cost, VC = wL (when labor is the only variable input). Average Total
Cost, ATC = TC/q, Average Variable Cost, AVC = VC/q, AVC = w/APL(when
labor is the only variable input). Average Fixed Cost, AFC = FC/q, Marginal
Cost, MC =
DVC/Dq,
MC = w/MPL(when labor is the only variable input).
Long-run (all resources are variable): Long-run Average Cost, LRAC, Increasing
Returns to Scale (Economies of Scale), Constant Returns to Scale, Decreasing
Returns to Scale (Diseconomies of Scale), minimum efficient scale, optimal plant
size, least-cost production (equal MP/$), cost minimization using isoquants and
isocost lines, Marginal Product of Capital, MPC or K. Marginal Rate
of Technical Substitution (slope of the isoquant)
TP = q = firm’s output (& what will cause TP to shift), MP, diminishing marginal returns (diminishing MP), average-marginal rule, TC, FC, VC, ATC, AVC, AFC, MC, MC = w/MP, least-cost production with multiple resources (equal MP/$), Long-run Average Cost (LRAC), Economies of Scale, Constant Returns to Scale, Diseconomies of Scale, minimum efficient scale, optimal plant size. You will need to understand these concepts and be able to identify them on various graphs representing all four market structures. Also study the appendix. Know isoquant curves, isocost lines, and their properties. Understand cost minimization and the marginal rate of technical substitution. You may wish to use the Chapter Seven questions from the study guide for our second exam to help you review this material.
Chapter Eight, Perfect Competition: Understand both the short- and long-run equilibria for this market structure; Structure-Conduct-Performance paradigm; market structure (characteristics of perfect competition, monopolistic competition, oligopoly and monopoly); perfectly-competitive firm’s D and MR curves (P=AR=MR); profit maximizing rule (MR=MC), shut-down point (min. AVC); compute profit and costs from tables or graphs; recognize, draw, and use graphs of costs and revenue; understand short-run & long-run equilibria, consumer efficiency, producer efficiency, productive efficiency, allocative efficiency; Long-run Industry Supply (Increasing, Constant, and Decreasing Cost Industries). You may wish to use the Chapter Eight questions from the study guide for our second exam to help you review this material.
Chapter Nine (Monopoly): Barriers to entry, natural monopoly, D and MR under monopoly, profit maximizing level of output, graphs, , price discrimination, monopoly compared to pure competition {allocative inefficiency, X-inefficiency (occurs when monopolists don't minimize costs), rent seeking}. Practice Quiz