1. AP Economics Review – Unit 3 Mr. Chris Meier – Penn Manor High School Most Essential Topics for Quiz: 1. Converting between Total, Marginal, Average 2. Utility Benefit Problem, especially solving a 2-good, utility- maximization problem 3. Consumer & Producer Surplus (from graph or from table) 4. Maximization Problems (MC=MR … aka … MC=MB) 5. Deriving a market demand curve from two individual tables (step graph)

2. AP Economics Review – Unit 3 Mr. Chris Meier – Penn Manor High School Topics not required on the 5&6 Quiz Actually drawing or interpreting from cost curves You’ll need to answer table or word-based questions based on understanding how Marginal/Total/Average are related… or connection between fixed vs. variable… but not on a graph LRATC Curve / Economies & Diseconomies of Scale. This will show up on 1-9 exam.

3. Question # 3 Provide two synonyms for the word UTILITY Happiness, Satisfaction, Pleasure, Benefit (even though there is a difference, same concept)

4. Question # 4 If your total benefit for consuming 5 tacos is $5, and the total benefit for consuming 6 tacos is $4.50, what is the marginal benefit of the 6 th taco? – 0.50

5. Question # 5 If you are given a table with: ◦ Price for Good A and Good B ◦ Q and MU for each quantity consumed of each How would a rational consumer determine which to consume first? By comparing the MU/P for A and the MU/P for B. One should first purchase the one with a HIGHER MU/P (Marginal Utility per dollar)

6. Question # 6 The utility-maximizing rule states that a consumer will maximize his/her utility between good A and good B if their budget is spend and _____ = _____. (MU/P)a = (MU/P)b …

7. Question # 7 How is the SHORT RUN different than the LONG RUN? In the Short Run, Labor is the only Variable input. Land & Capital are FIXED/HELD CONSTANT.

8. Question # 8 TR = $500,000 Explicit Costs = $420,000 Implicit Costs = $100,000 Total Fixed Costs = $50,000 ◦ Is this company earning accounting profits? If so, how much? ◦ Is this company earning economic profits? If so, how much? ◦ What are the Total Variable Costs for this company? Accounting Profits? YES ($80,000) Economic Profits? NO (-$20,000 … an econ. Loss) TVC = $470,000 (TC-TFC=TVC)

9. Question # 9 What is the formula for calculating Total Revenue? What is the formula for calculating Economic Profit? TR = P * Q Economic Profit = TR – TC

10. Question # 10 On Saturday, George has the choice of (a) playing video games for 2 hours, (b) Mowing lawns for two hours and earning $20, or picking up an extra shift at work to earn $15 for two hours. Assuming George is rational and that time is the only cost, if he decides to play video games, the total benefit to George of playing video games must be at least… At least greater than $20 for two hours (since he chose to play instead of earning $20 by mowing lawns.

11. Question # 11 What is the equilibrium price? Calculate Consumer Surplus. Calculate Producer Surplus. Pe = $2 C.S. = [1/2 (300*3) = $450 P.S. = [1/2 (300*2) = $300 [[[Graph it!!]]]

12. Question # 12 This table shows TB for John & Paul for KitKats (in cents). Calculate MB for each Draw a MARKET demand curve for KitKats (most accurate = step graph) If P=5 cents, how many will each purchase? What is total C.S. for the market? Draw Step graph. MB = additional benefit per unit. At P=5, John buys 2, Paul buys 3. Total CS=10 cents.

13. Question # 13 This table shows TB for Lydia & Mary for TicTacs (in cents). Calculate MB for each Draw a MARKET demand curve for TicTacs (most accurate = step graph) If P=3 cents, how many will each purchase? What is Total C.S. for the market? Draw Step graph. MB = additional benefit per unit. At P=3, Lydia buys 4, Mary buys 3. Total CS=10 cents.

14. Question # 14 This table shows TB for David & Bill for Pizzas (in dollars). Calculate MB for each Draw a MARKET demand curve for Pizzas (most accurate = step graph) If P=5 dollars, how many will each purchase? What is Total C.S. for the market? Draw Step graph. MB = additional benefit per unit. At P=5, David buys 3, Mary buys 3. Total CS=24 dollars.

15. Question # 15 QTC 00 15 29 314 420 528 What is the marginal cost of unit 3? What is the marginal cost for unit 5? If P=7, what is the profit maximizing output level? $5, $8, Profit Max = 4 units

16. Question # 16 QTC 05 115 220 330 445 565 What is the marginal cost of unit 3? What is the marginal cost of unit 4? What are the Total Fixed Costs for producing 2 units? What are the Total Variable Costs for producing 2 units? $10, $15, $5, $15

17. Question # 17 QTC 010 116 221 328 436 550 If P=$12, what is the profit maximizing output level? What is the marginal cost of producing the 3 rd unit? What is the ATC of producing 4 units? Profits maximized at 4 units MC of 3 rd unit = $7 ATC at 4 units = 36/4 = $9

18. Question # 18 QMC 0-- 15 24 35 46 57 If P=$5, what is profit maximizing output level? What is TC for 4 units? What is the AVC for 3 units? Profit Max. = 3 units [MC=MR] TC at 4 units = $20 AVC at 3 units = 14/3 = $4.67

19. Question # 19 QMC 0-- 125 220 324 430 532 What is the TC to produce 3 units? If P=$25, what is the profit- maximizing output level? 25+20+24+30=$99 Profit is maximized at 4 units

20. Question # 20 If Gasoline costs $3, and Milk costs $2, how would you maximize your utility with a budget of $15? How many utils would that provide? 3 Gasoline, 3 Milk [TU = 220 utils] Q Gasoline TU Gasoline Q MilkTU Milk 160144 299284 31203100 41354112 51445120

21. Question # 21 If Pencils costs 50 cents, and Pens cost $1, how would you maximize your utility with a budget of $5? 4 pencils, 3 pens [TU = 58 utils] Q PencilsTU PencilsQ PensTU Pens 18115 2 227 320335 423442 525545

22. Question # 22 If Tacos costs $1, and Pizza costs $2, how would you maximize your utility with a budget of $10? 4 Tacos & 3 Pizza [TU = 80 utils] Q TacosTU TacosQ PizzaTU Pizza 112120 221236 328348 432454 530555

23. Question # 23 If a business has $100,000 in explicit costs (expenses paid out), and $30,000 in implicit costs (other opportunity costs)… how much Total Revenue must this business earn to make a: ◦ Accounting profit of $5,000 ◦ Normal profit ◦ Economic profit $50,000 Accounting profit of $5,000 @ TR=$105,000 Normal profit @ TR=$130,000 Economic profit of $50,000 @ TR=$185,000

24. Question # 24 Economists assume that producers will continue to produce until … MC=MR !!!!!!!!!! !