Learn Extracted exam questions AP Microeconomics 2024 Free Response · Set 1
2024 Free Response · Set 1
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Soja Farm is a typical profit-maximizing firm that produces and sells soybeans in a constant-cost, perfectly competitive market that is in long-run equilibrium. The market equilibrium price of soybeans is $14 per bushel.
Draw correctly labeled side-by-side graphs for the soybean market and for Soja Farm, and show each of the following.
(i) The market equilibrium price and quantity, labeled $14 and$Q_M$, respectively (ii) Soja Farm's profit-maximizing price and quantity, labeled$P_F$and$Q_F$, respectively (iii) Soja Farm's average total cost curve consistent with a long-run equilibrium, labeled ATC
If Soja Farm is the only firm in the market that chooses to increase its price of soybeans to $15 per bushel, will Soja Farm's total revenue increase by$1, remain the same, or decrease to $0 ? Explain.
Soybeans are used as an input in the production of tofu. Tofu now becomes a more popular food option among consumers. On your graphs in part (a), show the short-run effect of the increased popularity of tofu on each of the following.
(i) The new market equilibrium price and quantity of soybeans, labeled $P_2$ and $Q_2$, respectively (ii) Soja Farm's new profit-maximizing quantity, labeled $Q^*$
Given the increase in popularity of tofu in part (c), what will happen to the number of firms in the soybean market in the long run? Explain.
Suppose a 25% increase in the market price of quinoa causes a 5% decrease in the quantity demanded of quinoa and a 10% increase in the quantity demanded for tofu.
Is the demand for quinoa elastic, inelastic, or unit elastic? Explain using numbers.
Calculate the cross-price elasticity of demand between quinoa and tofu. Show your work.
Good X is produced and sold in a perfectly competitive market. The provided graph shows the market for Good X.
[Graph: Price ($) on the vertical axis with gridlines at 10, 15, 20, 25; Quantity on the horizontal axis with gridlines at 200, 300, 400, 500, 600. One upward-sloping line from the origin is labeled "Marginal Social Cost = Marginal Private Cost". Two downward-sloping lines are labeled "Marginal Social Benefit" (the outer/upper one) and "Marginal Private Benefit" (the inner/lower one). The Marginal Social Cost = Marginal Private Cost line intersects the Marginal Social Benefit line at price$20, quantity 400 (dashed gridlines shown). The Marginal Social Cost = Marginal Private Cost line intersects the Marginal Private Benefit line at price $15, quantity 300 (dashed gridlines shown).]
Identify the market equilibrium price and quantity.
Calculate the deadweight loss at the market equilibrium. Show your work.
Suppose the government wants to eliminate the deadweight loss in the market for Good X.
Which of the following will achieve the government's objective: a per-unit tax on consumers or a per-unit subsidy to consumers? Explain.
What is the dollar value of the per-unit tax or per-unit subsidy identified in part (c)(i) ?
Suppose instead the government imposes a price ceiling of $10. Will the price ceiling achieve the socially optimal quantity of Good X? Explain.
Nice Ride and Field Cruiser are the only two producers of vehicles. Nice Ride is deciding whether to improve Safety or Comfort. Field Cruiser is deciding whether to improve Reliability or Power. The payoff matrix shows the payoffs for each combination of strategies. The first entry in each cell shows Nice Ride's profit, and the second entry shows Field Cruiser's profit. Each firm independently and simultaneously chooses its strategy. Assume the two firms know all the information in the matrix and do not cooperate.
| Field Cruiser: Reliability | Field Cruiser: Power | ||
|---|---|---|---|
| Nice Ride | Safety | $10 million,$28 million | $32 million,$35 million |
| Nice Ride | Comfort | $30 million,$40 million | $25 million,$20 million |
What is Field Cruiser's most profitable strategy if Nice Ride chooses to improve Safety?
Does Nice Ride have a dominant strategy? Explain using numbers from the payoff matrix.
Is Nice Ride choosing to improve Safety and Field Cruiser choosing to improve Power a Nash equilibrium? Explain using numbers from the payoff matrix.
Suppose Nice Ride and Field Cruiser decide to merge to maximize combined profits and choose to keep producing both Nice Ride and Field Cruiser vehicles. Assuming the values in the payoff matrix do not change, what would be the new firm's total profit?
Suppose instead that a change in fuel prices reduces the profitability of choosing to improve Power by $10 million for Field Cruiser. Identify each firm's profit at the Nash equilibrium.