## Tuesday, November 4, 2014

### Monopoly 9 - AP exam necessities

• Total Profit = (P-ATC) x Q
• Profit for 1 unit = (P-ATC) x 1
• TR = (P x Q)
• Allocative Efficiency = (MC = D) or (P = MC) also called Socially Optimal Level/Quantity or Socially Efficient Quantity
• Marginal Revenue is negative = inelastic section of Demand curve.
• Marginal Revenue is  positive = elastic section of demand curve.
• Zero Economic Profit = (P = ATC)
• Positive Economic Profit = (P > ATC)
• Losses(P < ATC)
• Profit Max = (MR = MC)
• Max Revenue = (MR = 0) where TR is maxed.
• Break-even = (P = ATC)
• Unit Elasticity = (MR = 0)
• Inelasticity = (MR < 0) or negative
• Elasticity = (MR > 0) or positive
• Demand curve is above MR, why?
• Economic Profit = TR - explicit - implicit
• If you raise your price and TR (decreases) you are in the elastic section of Demand curve
• If you lower your price and TR (increases) you are in the elastic section of the Demand curve
• If you raise your price and TR (increases) you are in the inelastic section of the Demand curve
• If you lower your price and TR (decreases) you are in the inelastic section of the demand curve
• If demand shifts, what happens to P, Q, & MR?
• Positive Accounting Profits = (covering explicit costs)
• Opportunity Cost = implicit costs (implicit costs include entrepreneurs payment to self)
• (MC > P) = (MSC > MSB) = Society has enough units of this product (Overproduction)
• (P = MC) = Allocative Efficiency (MSB = MSC)
• (MC < P) = (MSB > MSC) = (P > MC) = Society values more of this product (Underproduction)
• Accounting Profit + Explicit Cost = Total Revenue
• Accounting profit - implicit costs = Economic Profit
• Economic Profit  = TR - explicit + implicit costs
• Accounting profit = TR - explicit costs
• Total Revenue - explicit costs = Accounting Profit
• Monopoly is the industry thus it has a downward sloping demand curve
• MR is less than Price(Demand) - for every level of output (except the first), why? - the lower price applies not only to the extra output sold but also to all prior units of output.