Section outline

  • Developing Understanding

    Unit 3 focuses on firm behavior and culminates with an introduction to the perfect competition model, which will form a basis of comparison for other market structures in the next unit. This unit builds on the idea of supply, which was introduced in the previous unit, and explores in more detail what drives the decisions that firms make. Thinking like a firm may be challenging for students, who are more used to acting as consumers in their everyday lives. Drawing connections to students’ own experiences and carrying out classroom simulations can help bring these concepts to life. Reminding students of the ways in which the behavior of firms is consistent with the ideas of cost-benefit analysis and marginal decision-making addressed in the first unit of the course may also be helpful in elucidating these concepts.

    Building Course Skills

    1.A 1.C 1.D 2.A 4.A

    In this unit, students will be expected to describe the production function, the costs of production, and firms’ profit-maximizing behavior. Students should be able to represent these concepts graphically and numerically. It is important to devote sufficient time to introducing new vocabulary to students and may be helpful for students to create a vocabulary notebook. Since grasping the behavior of firms is not always intuitive for students, consider beginning this unit by carrying out a factory simulation in the classroom and having students graph the data generated and interpret the outcomes of the simulation. It helps to debrief the simulation during and immediately following the activity to clarify misconceptions and deepen students’ understanding of relevant concepts. Students should have additional opportunities to practice graphing, interpreting given graphs, and doing numerical problems in the context of the content covered in this unit. Proper graphing habits should continue to be reinforced throughout this unit and the entire course.

    Preparing for the AP Exam

    The perfect competition model is foundational to the study of market structures in this course and is frequently tested on the AP Exam. It’s important to ground students in the conceptual underpinnings of perfect competition, including the concept of efficiency and production in both the short run and the long run. Students will benefit from having multiple opportunities to practice drawing and interpreting graphs that represent perfect competition; past AP Exams may be helpful in this exercise. If students are able to grasp the concepts behind perfect competition and how it’s graphically represented, they will be better able to understand imperfect market structures in the next unit. 

    Questions on the AP Exam that cover long-run production costs are often challenging for students. It may be helpful to provide students with opportunities to practice identifying and explaining given situations to reinforce their understanding of long-run production. Keep in mind, though, that while this is a difficult topic for students, it does not comprise a significant portion of the AP Exam.