AP Microeconomics 3.7: Perfect Competition and Efficiency

Analyze competitive markets and firms as price takers, choose output where marginal revenue equals marginal cost, and evaluate efficiency.

[Maximum number: 2]

Deskward is a typical profit-maximizing firm that produces and sells wooden desks in a

constant-cost, perfectly competitive market that is in long-run equilibrium.

(a)

Draw correctly labeled side-by-side graphs for the wooden desk market and for Deskward

and show each of the following.

[ 2 ]

(i)

Deskward's profit-maximizing price and quantity, labeled $\mathrm{P}_{\mathrm{F}}$ and $\mathrm{Q}_{\mathrm{F}}$ , respectively

[ 1 ]

Point 3	The firm's graph must show a rising marginal cost (MC) curve, and show the firm's profit-maximizing quantity, labeled $\mathrm{Q}_{\mathrm{F}}$ , where $\mathrm{MR}=\mathrm{MC}$	1 point

(ii)

Deskward's average total cost curve consistent with long-run equilibrium, labeled ATC

[ 1 ]

Point 4 & The firm's graph must show the average total cost (ATC) curve tangent to the firm's $\mathrm{d}=\mathrm{MR}$ curve at $\mathrm{Q}_{\mathrm{F}}$ and show the MC curve passing through the minimum point of the ATC curve. Figure for Answer to Question (ii) — AP Microeconomics & 1 point \\

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PRD-3.A—a. Define (using graphs as appropriate) the characteristics of perfectly competitive markets and efficiency. b. Explain (using… question 1

Question (a)

Question (i)

Question (ii)