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AP Microeconomics — Firms and Market Failure flashcards

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Units 3–6: production and cost curves, profit maximization, perfect competition, monopoly, price discrimination, monopolistic competition, game theory, labor markets and monopsony, externalities, public goods and government policy, with AP-style graph and payoff-matrix problems.

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Learn deck · part of AP Microeconomics · written against: College Board AP Microeconomics Course and Exam Description (six units). Updated 2026-10-10.

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  1. What separates the short run from the long run in production?
    In the short run at least one input, usually plant size, is fixed; in the long run all inputs are variable, so firms can change scale or enter and exit.
    Production Cost and Perfect Competition › Production and Costs
  2. A bakery with one oven hires a third worker who adds 10 loaves, then a fourth who adds only 6. What principle is at work?
    The law of diminishing marginal returns: adding more of a variable input to a fixed input eventually makes each extra unit of the variable input add less output.
    Production Cost and Perfect Competition › Production and Costs
  3. Total product is 0, 10, 25, 36 and 44 units for 0 to 4 workers. What is the marginal product of the third worker, and the average product at three workers?
    Marginal product of the third worker is 36 − 25 = 11; average product at three workers is 36 ÷ 3 = 12.
    Production Cost and Perfect Competition › Production and Costs
  4. Why is a monopolist's marginal revenue less than its price?
    To sell one more unit it must lower the price on all units, so the revenue gained from the extra unit is partly offset by the revenue lost on units it could have sold at the higher price.
    Imperfect Competition › Monopoly
  5. A monopolist faces the demand curve P=100−2QP = 100 - 2Q⁠. What is its marginal revenue curve?
    MR=100−4QMR = 100 - 4Q⁠: for a straight-line demand curve, MR has the same intercept and twice the slope.
    Imperfect Competition › Monopoly
  6. A monopolist faces P=100−2QP = 100 - 2Q and a constant marginal cost of 20 dollars. What are its profit-maximizing quantity and price?
    Set MR = MC: 100 − 4Q = 20, so Q = 20; then read price from demand: P = 100 − 40 = 60 dollars.
    Imperfect Competition › Monopoly
  7. Why is the demand for labor called a derived demand?
    Firms want workers only because of the demand for the goods those workers produce, so labor demand is derived from product demand.
    Factor Markets
  8. In a perfectly competitive product market, the fifth worker adds 8 units of output and each unit sells for 5 dollars. What is that worker's marginal revenue product?
    40 dollars: MRP = MP × MR, and MR equals price for a competitive seller.
    Factor Markets
  9. A factory's production pollutes a river. Is the good over- or underproduced, and how do marginal social and private cost compare?
    Overproduced. MSC exceeds MPC by the marginal external cost, so the market quantity is above the socially optimal quantity and there is a deadweight loss.
    Market Failure and the Role of Government › Externalities
  10. How large should a Pigouvian tax be on a good with a negative externality?
    Equal to the marginal external cost at the socially optimal quantity, which shifts the private cost curve up to MSC so the market produces where MSB = MSC.
    Market Failure and the Role of Government › Externalities

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About these cards

Review status: Second-reader reviewed, with corrections applied.

Checked against:

  • Topic outline follows the College Board AP Microeconomics Course and Exam Description (effective Fall 2026), Units 3–6 (used as an outline only; no text copied).
  • OpenStax Principles of Economics 3e, consulted as a reference; no text copied.
  • Checked against Mankiw, Principles of Microeconomics (reference only; no text copied).
  • Price discrimination, public goods, monopsony, inequality, tax and antitrust facts also checked against Principles of Microeconomics (v. 2.0), section 11.3 (open textbook, CC BY-NC-SA 3.0), CORE Econ's The Economy 2.0: Microeconomics, section 10.7 (CC BY-NC-ND 4.0), the Federal Reserve Bank of Cleveland's 2007 Economic Commentary on the minimum wage and the labor market (CC BY-NC 4.0), the World Bank's Gini index (SI.POV.GINI) indicator metadata (CC BY 4.0), CRS report R41602 and the Clayton Act, 15 U.S.C. 18 (U.S. government works) (reference only; no text copied).

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