AP® Micro Unit 3: Production, Costs, & Perfect Competition

Topic 3.1- The Production Function

1. Calculate MP. Plot TP and MP on Graph
Number of Total Marginal
Workers Product Product
0 0
1 5
2 15
3 19
4 20
5 20
6 18
2. Define the Law of Diminishing Marginal
Returns

3. After which worker does diminishing

marginal returns set in?
Topic 3.2- Short-Run Production Costs
1. What are fixed costs (FC)?
2. What are variable costs (VC)?
4. Use the graph to identify the three stages of returns.
5. Draw and label MC, ATC, and AVC
Cost

3. What is total cost (TC)?

4. What is marginal cost (MC)?

Output
6. What is the equation for average 10. Fill in the blanks for a firm producing boxes of oranges.
total cost (ATC)?
Output Variable Total
AVC AFC ATC MC
(boxes) Cost Cost
7. What is the equation for average
variable cost (AVC)?
0 $0 $10 - - - -
1 $20
8. What is the equation for average 2 $15
fixed cost (AFC)? 3 $70 $3.3 $23
4 $2.5 $27 $40
9. Why does MC intersect ATC at
11. An increase in fixed cost will shift ____________ but not
ATC’s minimum?
________________.
12. An increase in variable cost will shift ____________ but not
________________.
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Topic 3.3- Long-Run Production Costs
1. Define economies of scale. 4. Draw the long-run average total cost curve
and identify economies of scale.

2. Define constant returns to scale. Costs

3. Define diseconomies of scale.

Topic 3.4- Types of Profit
1. Explain the difference between
accounting profit and economic profit
Output
Topic 3.5- Profit Maximization
Assume the price of the product is
constant at $100.
1. What is the profit-maximizing
rule?

2. What is the profit maximizing

quantity?
2. What is “normal profit”?
3. How much is the profit or loss?

Topic 3.6- Short-Run and Long-Run Decisions

1. What is the shut down rule? 2. Where is a firm’s short-run supply curve?

Topic 3.7- Perfect Competition

Use the graph to identify the following:
1. Profit maximizing quantity
2. Total revenue
3. Total cost
4. Economic profit
5. What will happen to the number of firms in
the market in the long run?

6. Assume the market reaches long run

equilibrium. What would be the price and
quantity?
7. In the long-run, would the firm earn
economic profit, accounting profit, neither, or
both?

8. If the price was $6, should the firm shut 9. List the characteristics of perfect competition
down in the short run?

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Topic 3.7- Perfect Competition (continued)
10. Draw side-by-side graphs for a perfectly competitive market and firm with the firm making profit
Price Market Price Firm

Quantity Quantity
11. Draw a perfectly competitive market and a firm with the firm making a loss
Price Market Price Firm

Quantity Quantity
12. Show what happens in the long run 13. Show what happens in the long run

Market: Firm: Market: Firm:

Price___ Quantity ___ Price___ Quantity___ Price___ Quantity ___ Price___ Quantity___
14. Draw a perfectly competitive market and firm in the long run. 15. Explain the two types of
efficiency.

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 Microeconomics
Unit 3 Practice Sheet
Part 1: Production Function​- ​Use the table to answer the questions.

1. What is the marginal product of the 4th worker? Show your work.

2. After which worker does the law of diminishing marginal returns set it? Why?

Part 2: Costs of
Production​- ​Fill in the
blanks in the chart and
answer the question.
3. Why does the marginal
cost of each unit initially
fall then increase as
more units are
produced?

Part 3: Cost Curves​-​ ​Use the graph below to answer the questions. Show your work.
4. What is the marginal cost of the 8th unit?

5. Calculate the fixed cost of producing 4 units?

6. Calculate the total variable cost of producing 9

units?

7. Calculate the total cost of producing 9 units?

8. Calculate the average fixed cost of 8 units?

9. Why does the marginal cost (MC) intersect the

average total cost(ATC) at the ATC’s minimum?

© Copyright Jacob Clifford 2020. ​Ultimate Review Packet

Teachers- Do NOT use this in your classroom. ​Contact me​ if you want to use this resource with your students
 Microeconomics
Unit 3 Practice Sheet
Part 4: Perfect Competition​- ​Use the graph below for a perfectly competitive firm to answer the
questions.
10. If the price is $8, what is the profit
maximizing quantity?

11. Calculate the total cost at the profit

maximizing quantity.

12. Calculate the profit or loss at the

profit maximizing quantity.

13. How much profit will this firm earn if

they increase the price $2 higher
than the market price?

14. What is the profit maximizing price

and quantity in the long-run?

15. If the market price is $5, will the firm earn economic profit, accounting profit, neither, or both? Why?

Part 5: Chart Practice​ ​- ​Use the chart to answer the questions.

16. If the market price is $15, what is the profit maximizing quantity?

17. Calculate the total revenue at the profit maximizing quantity.

18. Calculate the profit or loss at the profit maximizing quantity.

19. Calculate the profit or loss of producing 7 units.

20. Calculate the profit or loss of producing 3 units.

21. Assume that the market price fell to $10. Calculate the profit or
loss at the profit maximizing quantity.

22. If the market price is $10, should this firm shut down in the short-run? Why or why not?

© Copyright Jacob Clifford 2020. ​Ultimate Review Packet

Teachers- Do NOT use this in your classroom. ​Contact me​ if you want to use this resource with your students