No Bull Economics Lessons

Macroeconomics & Microeconomics Concepts You Must Know

Essential Questions

How do you graph a perfectly competitive firm earning short-run economic profits?

Posted on April 16, 2014 at 1:00 PM Comments comments (0)

When graphing perfect competition, it is a good idea to graph the market and firm side-by-side so that the market equilibrium is lined up with the firm's horizontal marginal revenue curve. The market (industry) graph is a simple supply and demand graph. For the firm, the price equals the marginal revenue equals the marginal cost output point must exceed the average total cost curve.


In the long run, more firms will enter the market (supply shifts right) causing the price to fall and the firm to break even (AKA normal profit AKA long run equilibrium AKA zero economic profit)


This No Bull Review video shows you how to draw correctly labeled graphs for perfect competition.

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AP Microeconomics Unit 2 Product Markets

How does the law of diminishing marginal returns work?

Posted on April 15, 2014 at 6:45 PM Comments comments (0)

The law of diminishing marginal returns states that as an additional worker is added to a fixed set of resources, the additional output produced by the new worker will decrease. In other words, the marginal product falls. To calculate the marginal product, divide the change in total product by the change in resources units.

 

According to the No Bull Review chart below, diminishing marginal returns begins after the second worker is hired. The marginal product falls from 24 units to 19 units as a result of employing the third worker.

AP Microeconomics Unit 2 Product Markets

What are marginal costs?

Posted on April 14, 2014 at 8:30 PM Comments comments (0)

Marginal costs are the most important costs that a firm faces because these costs help determine profit maximization at the margin. Marginal costs are the change in total costs resulting from a change in output (change in total costs/change in output). It's the additional cost of producing one more unit.


You can also estimate marginal costs by dividing the wage by marginal product (W/MP).


AP Microeconomics Unit 2 Product Markets

What is the relationship between elasticity of demand and marginal revenue?

Posted on April 14, 2014 at 8:20 PM Comments comments (0)

When marginal revenue is greater than zero, demand is price elastic. When marginal revenue is less than zero, demand is price inelastice. When marginal revenue equals zero, demand is unit elastic.


This No Bull Review video illustrates how this conceprt is linked to a firm selling output in an imperfectly competitive market such as a monopoly.

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AP Microeconomics Unit 2 Product Markets

Where will a firm maximize economic profits?

Posted on April 14, 2014 at 8:05 PM Comments comments (0)

A firm will maximize its economic profit (or minimize its losses) when it produces at a level of output where the marginal cost equals the marginal revenue (MR=MC). The price it charges its customers can be found on the corresponding demand curve.


AP Microeconomics Unit 2 Product Markets

How do you graph a monopoly with an economic profit?

Posted on April 14, 2014 at 5:55 PM Comments comments (0)

To illustrate a monopoly with a short run economic profit, the demand curve must exceed the average total cost curve at the marginal revenue equals marginal cost level of output.


The No Bull Review video below shows you exactly how to do it!

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AP Microeconomics Unit 2 Product Markets