AP®︎ Microeconomics Unit 3: Notes & Study Guide
Prepare for your quiz, test, or the AP exam with a comprehensive review on Unit 3 of AP Microeconomics – Production, Cost, and the Perfect Competition Model.
Unit 3: Production, Cost, and the Perfect Competition Model
This unit focuses on how firms make production decisions in the short and long run, analyzing costs, revenues, and profit maximization.
Begin with Topic 3.1: The Production FunctionTo review Unit 3, go through each of the 7 topics below.
Everything you actually need to know for your Unit 3 test, pulled directly from the AP® Microeconomics curriculum.
The Production Function
The Production Function
- The Production Function
- Total, Marginal, and Average Product
- The Law of Diminishing Marginal Returns
Short-Run Production Costs
Short-Run Production Costs
- Short Run Production and the Structure of Costs
- Per-Unit and Marginal Costs
- Why Cost Curves Are Shaped This Way
Long-Run Production Costs
Long-Run Production Costs
- The Long Run in Production and Cost
- Returns to Scale
- Economies and Diseconomies of Scale
Types of Profit
Types of Profit
- What Profit Is and Why Economists Care
- Explicit vs Implicit Costs
- The Three Types of Profit
Profit Maximization
Profit Maximization
- The Profit-Maximizing Rule
- Why MR = MC Maximizes Profit
- Finding the Profit-Maximizing Quantity from a Table
Firms’ Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
Firms’ Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
- Short-Run Production Decision and the Shut-Down Rule
- Long-Run Entry and Exit Decisions
- How Entry and Exit Change the Market
Perfect Competition
Perfect Competition
- What a Perfectly Competitive Market Is
- How a Perfectly Competitive Firm Maximizes Profit
- From Short Run to Long Run Equilibrium
Notes
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