22–25% of the AP exam. Key topics: Production function: total product (TP), marginal product (MP), Law of diminishing marginal returns, Short-run cost curves: fixed cost (FC), variable cost (VC), total cost (TC), Average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), marginal cost (MC), Geometric relationships among cost curves: MC crosses ATC and AVC at their minima; AFC = ATC − AVC, Economic profit vs. accounting profit; normal profit; sunk cost, Total revenue (TR), marginal revenue (MR), and price in perfect competition (P = MR = D), Profit-maximization rule: MR = MC, Short-run equilibrium: profit, loss, and shutdown condition (P < min AVC), Long-run equilibrium in perfect competition: P = min ATC, zero economic profit, Productive efficiency (P = min ATC) and allocative efficiency (P = MC).
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