Micro Unit 3:

Unit 3 Organizing Principles

For many students, Unit 3 (and 4) will probably be the most difficult units.

First you will analyze the relationship between inputs and output and the law of diminishing marginal returns. Make sure that you can calculate marginal product and identify the three stages of returns.

Next you learn about the short run costs of production. Make sure you know how to calculate and shift the average total cost and marginal cost. You will also learn about the long run costs of production and the idea of economies of scale.

Cost curves will make more sense later in the unit when you add in revenue curves and calculate total revenue, total cost, and profit. Firms will always maximize profit by producing where the marginal revenue equals the marginal cost. This unit will introduce the four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. This unit will include only perfect competition. The next unit will cover the other three.

Make sure to know the characteristics of perfect competition and how to draw a perfectly competitive firm making profit, loss, or in long-run equilibrium. You will also need to learn the shut down rule, short run supply curve, and the two types of efficiency: productive and allocative.

This is a tough unit but with practice and study you can master it.