Learn Extracted exam questions AP Microeconomics 2023 Free Response · Set 2
2023 Free Response · Set 2
Source PDF on the left, extracted YAML on the right. Compare numbering, marks, options and text.
Anderson Company is a typical firm that manufactures Good G in a constant-cost, perfectly competitive market. Anderson Company is currently earning positive economic profit.
What must be true about the relationship between accounting profit and economic profit if Anderson Company currently incurs both explicit and implicit costs in production?
Draw correctly labeled side-by-side graphs for the market and Anderson Company 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 Anderson Company, labeled $P_F$ and $Q_F$, respectively (iii) The area representing Anderson Company's positive economic profit, shaded completely
On your graphs in part (b), show what will happen to each of the following if the market for Good G adjusts to long-run equilibrium.
(i) The market equilibrium price and quantity, labeled $P_2$ and $Q_2$, respectively (ii) Anderson Company's profit-maximizing price and quantity, labeled $P*$ and $Q*$, respectively
Assume the production of Good G creates benefits for third parties. Given this situation, will the market equilibrium quantity be greater than, less than, or equal to the allocatively efficient quantity? Explain.
The government takes an action that corrects the externality in the market for Good G. As a result of the government's action, does total economic surplus increase, decrease, or stay the same? Explain.
Keepdry produces and sells rain jackets in a perfectly competitive product market at the price of $5 per jacket and hires all the workers it needs in a perfectly competitive labor market at the wage rate of$15. Labor is the only variable input, and the firm's production schedule is provided in the table.
| Number of Workers | Quantity of Output |
|---|---|
| 0 | 0 |
| 1 | 9 |
| 2 | 20 |
| 3 | 27 |
| 4 | 32 |
| 5 | 34 |
| 6 | 35 |
Calculate the marginal revenue product of the second worker. Show your work.
Diminishing marginal returns will begin with the hiring of which worker?
Determine the profit-maximizing number of workers the firm should hire. Explain using marginal analysis.
Assuming Keepdry's fixed cost is $40, calculate Keepdry's economic profit when hiring the profit-maximizing number of workers. Show your work.
Suppose Keepdry's fixed cost increases to $80. Will the profit-maximizing number of workers hired in the short run increase, decrease, or stay the same? Explain.
The graph shows the cost and revenue curves for an unregulated, profit-maximizing monopoly.
[Graph of Price, Cost (vertical axis) vs. Quantity (horizontal axis) for a monopoly. Four downward-sloping curves are drawn from a common region on the left: a steep straight-line "Demand" curve, a steeper straight-line "Marginal Revenue" curve below it, a curved "Average Total Cost" curve, and a curved "Marginal Cost" curve that dips down and then rises, crossing the other curves. Horizontal dashed price levels from top to bottom: $P_7$ (the vertical-axis intercept of Demand), $P_6$, $P_5$, $P_4$, $P_3$, $P_2$ (just below $P_3$), and $P_1$ (drawn as a solid horizontal line). Vertical dashed quantity levels from left to right: $Q_1$, $Q_2$, $Q_3$, $Q_4$. Labeled points on the curves: point $a$ at $(Q_1, P_6)$ on the Demand curve; point $b$ at $(Q_2, P_5)$ on the Demand curve; point $e$ at $(Q_2, P_4)$ on the Average Total Cost curve; point $h$ at $(Q_2, P_3)$ on the Marginal Cost curve; point $f$ at $(Q_2, P_1)$ on the Marginal Revenue curve; point $c$ at $(Q_3, P_3\text{–}P_2 \text{ region})$ where Demand, Average Total Cost, and Marginal Cost curves appear to intersect; point $d$ at $(Q_4, P_2)$ on the Average Total Cost curve; point $j$ at $(Q_3, P_1)$ on the Marginal Revenue curve; point $g$ at $(Q_4, P_1)$ on the Marginal Cost curve. Curves are labeled directly on the graph: "Average Total Cost", "Marginal Cost", "Demand", "Marginal Revenue".]
Is the firm shown in this graph a natural monopoly? Explain.
Using the labeling from the graph, identify the area representing the deadweight loss for this profit-maximizing monopoly.
In order to improve resource allocation, the government sets a price that results in the firm earning zero economic profit. Using the labeling from the graph, identify the price and resulting quantity the firm would produce.
Will this government policy eliminate the deadweight loss? Explain using labeling from the graph.
Instead, the government decides to set a price that results in the socially optimal quantity of output. Will the firm earn positive, negative, or zero economic profit? Explain using labeling from the graph.