1. Microeconomics ECON 2302 May 2009 Marilyn Spencer, Ph.D. Professor of Economics Review: Chapters 8, 10, 11 & 12

2. Announcement 4 I will hold amended office hours Tues., May 26: Ü1:30-2:30 p.m.

3. Exam 2 4 Test format (same as Exam 1): ÜShort answer questions, problem solving, graphing & a few multiple choice ÜQuestions include definitions, theory & applications – Expect graphing and working with tables of numbers. Ü75 minutes

4. 1.Define technology and give examples of positive and negative technological change. 2.Distinguish between the economic short run and the economic long run. 3.Understand the relationship between the marginal product of labor and the average product of labor. 4.Explain and illustrate the relationship between marginal cost and average total cost. 5.Graph average total cost, average variable cost, average fixed cost, and marginal cost. 6.Understand how firms use the long-run average cost curve to plan. Learning Objectives from Chapter 10 - You should now be able to:

5. Chapter 10 MAJOR TOPICS  Short run v. long run  Economic cost v. accounting cost  Marginal product & average product of labor  Family of SHORT RUN cost curves: ATC, AFC, AVC, MC  LONG RUN: Returns to scale/efficient scale

6. Learning Objectives from Chapter 11 - You should now be able to: 1.Define a perfectly competitive market, and explain why a perfect competitor faces a horizontal demand curve. 2.Explain how a perfect competitor decides how much to produce. 3.Use graphs to show a firm’s profit or loss. 4.Explain why firms may shut down temporarily. 5.Explain how entry and exit ensure that firms earn zero economic profit in the long run. 6.Explain how perfect competition leads to economic efficiency.

7. Chapter 11 MAJOR TOPICS  Perfectly competitive market assumptions and conditions  Elasticity of demand for a perfectly competitive firm  Perfectly competitive profit maximization  Perfectly competitive loss minimization/ shutdown point  Long run entry and exit  Efficiency of perfect competition

8. Learning Objectives from Chapter 12 - You should now be able to: 1.Explain why a monopolistically competitive firm has a downward-sloping demand curve. 2.Explain how a monopolistically competitive firm decides the quantity to produce and the price to charge. 3.Analyze the situation of a monopolistically competitive firm in the long run. 4.Compare the efficiency of monopolistic competition and perfect competition. 5.Define marketing and explain how firms use it to differentiate their products. 6.Identify the key factors that determine a firm’s profitability.

9. Chapter 12 MAJOR TOPICS  Monopolistically competitive market assumptions/conditions  Profit maximization/loss minimization in monopolistic competition  Effects of long run entry and exit  Efficiency v. variety  Importance of innovation  Marketing

10. Any questions on these topics?

11. Assignments for May 26: 4 Study Ch. 13 and be able to answer: ÜReview Questions: p. 464, 1.1 – 1.3; p. 466, 2.1, 2.3, 2.4 & 2.5 (1 st edition: 1-4, 6-8 & 10 on pp. 436-43), and ÜProblems and Applications: p. 465, 1.10; p. 466, 2.6, 2.7 & 2.10; p. 467, 2.17; p. 468, 2.19; and: The city is considering auctioning licenses that would allow one or two vendors to sell ice cream on the local beach.  If the city licenses two vendors, will it receive more in total license fees than if it sells a license to only one vendor?  Will people who use the beach be better off if the city licenses two vendors or one vendor?  Suppose the city licenses two vendors but announces that every year it will sell licenses to two new vendors. The same vendor may not hold a license more than once every five years. Would this make any difference to the prices the vendors change? (1 st edition: 1, 2, 3, 4, 11, 15 & 21 on pp. 437-440).