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.

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