AP Microeconomics FRQs test whether you can apply the MR=MC rule and draw accurate graphs. If you master three graphs and one rule, you can earn the majority of FRQ points.
The One Rule That Rules Everything
MR = MC at profit-maximizing quantity. In perfect competition: P = MR = MC (price taker). In monopoly: MR < P, so firm produces where MR = MC then charges P on demand curve above. In monopolistic competition: same as monopoly short run; long run, entry drives P = ATC (zero economic profit).
Three Graphs — Draw Them From Memory
- Perfectly Competitive Firm + Industry (two-panel): Industry sets equilibrium price; firm is horizontal price taker. Firm produces where P = MC. Show profit area (P above ATC) or loss (P below ATC).
- Monopoly: Downward-sloping demand, MR below demand (steeper), MC upward. Profit-max at MR=MC quantity, price on demand curve. Shade profit rectangle. Shade DWL triangle between competitive quantity and monopoly quantity.
- Factor Market (labor): MRP = demand for labor (downward-sloping). Wage rate = horizontal supply in competitive market. Profit-max employment where MRP = W.
Market Structure Cheat Sheet
| Structure | Firms | Long-Run Profit | Allocatively Efficient? |
|---|
| Perfect Competition | Many | Zero (P=ATC) | Yes (P=MC) |
| Monopolistic Competition | Many | Zero (P=ATC) | No (P>MC) |
| Oligopoly | Few | Positive possible | No |
| Monopoly | One | Positive | No (P>MC) |
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