Learn Extracted exam questions AP Microeconomics 2022 Free Response · Set 2
2022 Free Response · Set 2
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Sugar is produced in a perfectly competitive market using inputs from perfectly competitive factor markets. Frank Sugar Co. is a representative firm in the sugar market.
Assume Frank Sugar Co. is earning zero economic profit. Draw correctly labeled side-by-side graphs for the sugar market and Frank Sugar Co. and show each of the following.
(i) The market equilibrium price and quantity, labeled $P_M$ and $Q_M$, respectively (ii) The profit-maximizing price and quantity for Frank Sugar Co., labeled $P_F$ and $Q_F$, respectively
Assume the demand for sugar increases and sugar is produced in a constant-cost industry.
On your graph in part (a), show the short-run effect of the increased demand for sugar on the market price, labeled $P_2$, and the quantity sold by Frank Sugar Co., labeled $Q_N$.
Compared to the equilibrium identified in part (a)(ii), what will happen to the short-run profit earned by Frank Sugar Co. as a result of the increased demand for sugar?
When the market adjusts to long-run equilibrium, how will the market price of sugar in the long run compare to $P_2$ ? Explain.
Instead, assume sugar consumption has a negative impact on public health over time and the negative impact of sugar on health is underestimated by consumers. Draw a correctly labeled graph of the market, with the marginal social benefit (MSB), marginal private benefit (MPB), marginal social cost (MSC), and marginal private cost (MPC) curves, and show each of the following.
(i) The market equilibrium quantity, labeled $Q_M$ (ii) The socially optimal quantity, labeled $Q_S$
Assume the government decides to intervene in the market to affect consumers' incentives and to address the negative impact of sugar consumption on public health. Which of the following policies would best achieve that objective in the short run: a lump-sum tax, a per-unit tax, a lump-sum subsidy, or a per-unit subsidy? Explain.
The graph provided depicts New Zealand's domestic supply and demand for wool.
[Graph titled "Price ($)" on the y-axis (0 to 70, gridlines every 10) and "Quantity" on the x-axis (0 to 500+, gridlines every 100). Two straight lines are shown: "Domestic Supply", an upward-sloping line starting near (0, 10) and rising through (100, 20), (200, 30), (300, 40), (400, 50), (500, 60), continuing upward to the right; and "Domestic Demand", a downward-sloping line starting near (0, 70) and falling through (100, 60), (200, 50), (300, 40), (400, 30), (500, 20), continuing downward to the right. The two lines intersect at approximately (300, 40).]
Calculate the consumer surplus if New Zealand does not trade with the rest of the world. Show your work.
Instead, assume New Zealand decides to trade wool in the world market. The current world price of wool is $60 per unit, and New Zealand is a price taker in the world market.
(i) How many units of wool will New Zealand export? (ii) What will happen to the consumer surplus of wool consumers in New Zealand when New Zealand begins to trade with the rest of the world? Explain. (iii) Will total economic surplus in New Zealand increase, decrease, or remain unchanged when New Zealand begins to trade wool in the world market? Explain using numbers.
Now assume domestic demand in New Zealand increases. Will New Zealand's exports increase, decrease, or stay the same?
The graph provided shows the demand (D), long-run average total cost (LRATC), marginal cost (MC), and marginal revenue (MR) curves for a natural monopoly.
[Graph titled "Price, Cost ($)" on the y-axis (values marked at 6, 10, 13, 15, 23, 40) and "Quantity" on the x-axis (values marked at 34, 50, 60). A downward-sloping demand curve (D) starts at (0, 40) and slopes down to the right, passing through approximately (60, 15) and continuing to lower price/higher quantity. A steeper downward-sloping marginal revenue curve (MR) starts at (0, 40) and falls more steeply, crossing the quantity axis near Q = 34. The long-run average total cost curve (LRATC) is U-shaped, starting high on the left, declining to a minimum of about$6 near Q = 34, then rising gently through about (50, 10) toward (60, 13) and beyond. The marginal cost curve (MC) is upward-sloping, starting below LRATC, crossing LRATC at its minimum point (about Q = 34, price $6), and rising to intersect MR at Q = 34 and to intersect the demand curve (D) at approximately (60, 15). Dashed reference lines connect price levels 23, 15, 13, 10, 6 on the y-axis to quantities 34, 50, 60 on the x-axis, marking the curve intersections.]
Over the output range of 0 to 60 units, is this firm experiencing economies of scale, diseconomies of scale, or constant returns to scale? Explain.
Using numbers from the graph, identify the price and quantity produced at which the monopolist earns zero economic profit.
Assume that regulators impose a price ceiling that results in the firm producing the socially optimal quantity in the short run.
Calculate the total revenue at the price ceiling. Show your work.
Explain why the firm requires a subsidy to continue producing in the long run.
Calculate the lump-sum subsidy that would be required for the monopolist to produce the socially optimal quantity in the long run. Show your work.