Learn Extracted exam questions AP Microeconomics 2024 Free Response · Set 2
2024 Free Response · Set 2
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Arzeye Pharma has a patent, a legal barrier to entry, on its newly developed eye treatment that cures common eye problems. Arzeye Pharma is currently earning positive economic profit and is producing the profit-maximizing quantity of eye treatments.
Draw a correctly labeled graph for Arzeye Pharma and show each of the following. (i) The profit-maximizing quantity of eye treatments, labeled Q* (ii) The profit-maximizing price, labeled P* (iii) The average total cost curve consistent with positive economic profit, labeled ATC (iv) The area representing consumer surplus, shaded completely
Suppose Arzeye Pharma wants to charge a price that maximizes its total revenue rather than its profit. On your graph in part (a), show the revenue-maximizing quantity, labeled $Q_R$.
At quantity $Q_R$ identified in part (b)(i), is the demand for eye treatments elastic, inelastic, or unit elastic?
Suppose now that Arzeye Pharma engages in perfect price discrimination. On your graph in part (a), show the lowest price that Arzeye Pharma would charge, labeled $P_2$.
What would happen to consumer surplus? Explain.
Suppose instead that Arzeye Pharma's patent expires. Will the demand for Arzeye Pharma's treatment become more elastic, become less elastic, or not change? Explain.
The table provided shows the short-run production function for Lowen Feline, a profit-maximizing firm that produces cat food.
| Number of Workers | Total Quantity of Cat Food (bags) |
|---|---|
| 0 | 0 |
| 1 | 5 |
| 2 | 12 |
| 3 | 18 |
| 4 | 23 |
| 5 | 27 |
| 6 | 30 |
| 7 | 32 |
| 8 | 33 |
| 9 | 32 |
Lowen Feline sells as many bags of cat food as it wants at a market price of $10 per bag and hires as many workers as it wants at a market wage of$18.
Lowen Feline's fixed cost is $90. Calculate the average fixed cost if Lowen Feline hires 6 workers. Show your work.
Assume labor is the only variable input to Lowen Feline. Calculate the marginal cost if Lowen Feline increases output from 27 to 30 units. Show your work.
With the hiring of which worker do diminishing marginal returns begin? Explain using numbers.
Determine the profit-maximizing number of workers Lowen Feline will hire. Explain using marginal analysis.
In the long run, a rival company, Gato Food, increases its production from 40 to 50 units, and its total cost increases from $600 to$900. Over the output range of 40 to 50 units, is Gato Food experiencing economies of scale, diseconomies of scale, or constant returns to scale? Explain using numbers.
Backpacks are produced in a perfectly competitive market that has no externalities. The provided graph shows the market supply and demand curves for backpacks in the country of Jambo.
[Graph titled "Price ($)" (y-axis) vs. "Quantity of Backpacks" (x-axis). Y-axis gridlines at 15, 30, 45, 60, 75, 90, 105, 120, 135, 150. X-axis gridlines at 0, 4, 8, 12, 16, 20, 24, 28, 32, 36, 40. A straight upward-sloping "Supply" line starts at approximately (0, 30) and rises to approximately (40, 150). A straight downward-sloping "Demand" line starts at approximately (0, 150) and falls to approximately (40, 0). The two lines cross at the equilibrium point (16, 90).]
Calculate total economic surplus at the market equilibrium. Show your work.
To decrease the price of backpacks for students, the government of Jambo has decided to set a price ceiling of $60 per backpack. Compared to the market equilibrium, will the quantity of backpacks purchased increase, decrease, or not change as a result of the price ceiling? Explain.
Suppose instead the government of Jambo provides a per-unit subsidy of $30 to the sellers of backpacks. Identify the price paid by consumers per backpack after the per-unit subsidy is implemented.
Calculate the total cost of the subsidy to the government. Show your work.
Does the per-unit subsidy cause deadweight loss to increase, decrease, or remain the same compared to the market equilibrium in part (a)? Explain.