You have completed the third Module of this Credit Unit!
Your next step is the Credit Unit Competency Assessment
Your assessment will need to be graded, and you must receive a grade of 75% or better. If you have any questions, please contact your Student Navigator.
Take a moment to review your notes and the Module Outcomes listed below. Be sure to prepare well before you attempt to take your assessment. The assessment is your opportunity to demonstrate your understanding of all the concepts presented in this unit.
Module 1 Outcomes:
- Apply the marginal decision rule to explain how a firm chooses its mix of factors of production in the long run.
- Define the long-run average cost curve and explain how it relates to economies and diseconomies or scale.
Module 2 Outcomes:
- Explain what economists mean by perfect competition.
- Identify the basic assumptions of the model of perfect competition and explain why they imply price-taking behavior.
- Show graphically how an individual firm in a perfectly competitive market can use total revenue and total cost curves or marginal revenue and marginal cost curves to determine the level of output that will maximize its economic profit.
- Explain when a firm will shut down in the short run and when it will operate even if it is incurring economic losses.
- Derive the firm’s supply curve from the firm’s marginal cost curve and the industry supply curve from the supply curves of individual firms.
- Explain why in long-run equilibrium in a perfectly competitive industry firms will earn zero economic profit.
- Describe the three possible effects on the costs of the factors of production that expansion or contraction of a perfectly competitive industry may have and illustrate the resulting long-run industry supply curve in each case.
- Explain why under perfection competition output prices will change by less than the change in production cost in the short run, but by the full amount of the change in production cost in the long run.
- Explain the effect of a change in fixed cost on price and output in the short run and in the long run under perfect competition.
Module 3 Outcomes:
- Define monopoly and the relationship between price setting and monopoly power.
- List and explain the sources of monopoly power and how they can change over time.
- Define what is meant by a natural monopoly.
- Explain the relationship between price and marginal revenue when a firm faces a downward-sloping demand curve.
- Explain the relationship between marginal revenue and elasticity along a linear demand curve.
- Apply the marginal decision rule to explain how a monopoly maximizes profit.
- Explain and illustrate that a monopoly firm produces an output that is less than the efficient level and why this results in a dead weight loss to society.
- Explain and illustrate how the higher price that a monopoly charges, compared to an otherwise identical perfectly competitive firm, transfers part of consumer surplus to the monopolist and raises questions of equity.
- Considering both advantages and disadvantages, discuss the potential effects that a monopoly may have on consumer choices, price, quality of products, and technological innovations.
- Discuss the public policy responses to monopoly.