Learn Extracted exam questions AP Microeconomics 2025 Free Response · Set 1
2025 Free Response · Set 1
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Voda Reservoir is a profit-maximizing firm and the only producer of bottled water in a country. Currently, Voda Reservoir is earning negative economic profit.
Draw a correctly labeled graph for Voda Reservoir and show each of the following. The profit-maximizing quantity, labeled $Q_M$.
The profit-maximizing price, labeled $P_M$.
The average total cost curve consistent with Voda Reservoir earning negative economic profit, labeled ATC.
The area of deadweight loss, shaded completely.
Suppose the government requires Voda Reservoir to produce the socially optimal quantity of bottled water. On your graph in part A, show the socially optimal quantity of bottled water, labeled $Q_S$.
Suppose instead the government grants a per-unit subsidy to Voda Reservoir. What will happen to Voda Reservoir's profit-maximizing quantity of bottled water? Explain.
Suppose new producers have entered the bottled-water market and Voda Reservoir continues to operate in the bottled-water market. Will the demand for Voda Reservoir's bottled water become more elastic, become less elastic, or stay the same as new producers enter the market?
Voda Reservoir hires workers in a perfectly competitive labor market. If the demand for bottled water increases, what will happen to Voda Reservoir's demand for labor? Explain.
The government implements a new regulation that increases the minimum age required for a worker to be employed in a bottled-water factory. What will happen to the market wage in the short run? Explain.
The graph provided shows the market for rice in the country of Rushland.
[Graph of the market for rice in Rushland; x-axis "Quantity" from 0 to 120 (gridlines every 10); y-axis "Price per Bushel ($)" from 0 to 12 (gridlines every 1). A straight downward-sloping Demand line runs from (0, 10) to (100, 0), labeled "Demand" near its right end. A straight upward-sloping Supply line runs from (0, 1) to (120, 7), labeled "Supply" near its right end. The two lines intersect at the equilibrium point (60, 4).]
Calculate the total economic surplus at market equilibrium. Show your work.
If the government sets a price floor at $3 per bushel, will there be a surplus, a shortage, or neither? Explain.
Suppose that instead of the price floor, Rushland engages in international trade and the world price of rice is $5 per bushel. Will Rushland export or import rice? Explain using numbers from the graph.
Calculate the domestic consumer surplus when Rushland engages in international trade. Show your work.
Calculate the total revenue that Rushland's farmers will earn at the world price. Show your work.
Tony's Trinkets and Bitaly's Bracelets are the only two firms in a town that produce and sell jewelry. Tony's Trinkets is deciding whether to produce Unique jewelry or Typical jewelry. Bitaly's Bracelets is deciding whether to produce Gold jewelry or Silver jewelry. The payoff matrix shows the payoffs for each combination of strategies. The first entry in each cell shows Tony's Trinkets' profit, and the second entry shows Bitaly's Bracelets' profit. Each firm independently and simultaneously chooses its strategy. Assume that the two firms know all the information in the matrix and do not cooperate.
| Bitaly's Bracelets | |||
|---|---|---|---|
| Gold | Silver | ||
| Tony's Trinkets | Unique | $15,$21 | $20,$19 |
| Tony's Trinkets | Typical | $10,$7 | $21,$16 |
Suppose Bitaly's Bracelets chooses to produce Silver jewelry. Is choosing to produce Unique jewelry the best choice for Tony's Trinkets? Explain using numbers from the payoff matrix.
Is Bitaly's Bracelets' dominant strategy to produce Gold jewelry, to produce Silver jewelry, or does it not have a dominant strategy? Explain using numbers from the payoff matrix.
Identify all Nash equilibria for this game.
Suppose Tony's Trinkets' profit from producing Typical jewelry increases regardless of what Bitaly's Bracelets does. What is the minimum amount by which Tony's Trinkets' profit must increase in order for Typical jewelry to become a dominant strategy: $2,$4, $6,$11, or $15?
Suppose instead that these two firms now cooperate and merge into one firm to maximize their combined profits. The new firm will have two locations and continue to face the same actions and payoffs. Calculate the new firm's maximum combined profit. Show your work.