Learn Extracted exam questions AP Microeconomics 2026 Free Response
2026 Free Response
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Feram and Ocel are the only two steel manufacturers in the region. Feram is deciding whether to transport its steel with Truck or Rail. Ocel is deciding whether to produce its steel as Sheets or Beams. The payoff matrix shows the payoffs for each combination of strategies. The first entry in each cell shows Feram's profit, and the second entry shows Ocel's profit. Each firm independently and simultaneously chooses its strategy. Assume that Feram and Ocel know all the information in the matrix and do not cooperate.
| Ocel | Ocel | ||
|---|---|---|---|
| Sheets | Beams | ||
| Feram | Truck | $40 million,$95 million | $20 million,$125 million |
| Feram | Rail | $50 million,$75 million | $30 million,$25 million |
What is Feram's most profitable strategy if Ocel chooses to produce Sheets?
Does Ocel have a dominant strategy? Explain using numbers from the payoff matrix.
Identify the Nash equilibrium (or equilibria) for this game, or state that none exists.
Suppose Feram incurs a $20 million increase in the cost of Rail transport, with no change in the cost of Truck transport. Redraw the payoff matrix, including the firms, strategies, and payoffs, showing how the$20 million increase in the cost of Rail transport affects the payoff matrix.
Suppose instead that Feram and Ocel now cooperate and merge into one new firm, Acier, which is now the only producer of steel in the region. Acier produces the profit-maximizing quantity of steel and is earning positive economic profit. Draw a correctly labeled graph for Acier, and show each of the following.
Acier's profit-maximizing quantity, labeled $Q_1$
Acier's profit-maximizing price, labeled $P_1$
The average total cost curve, labeled ATC, consistent with Acier earning positive economic profit
The area of deadweight loss, shaded completely
Government regulators impose a lump-sum tax on Acier. In the short run, will Acier's profit-maximizing price of steel increase, decrease, or remain the same as a result of the lump-sum tax? Explain.
The table shows Protecto's short-run cost schedule of producing helmets.
| Quantity of Helmets | Total Cost ($) | Marginal Cost ($) |
|---|---|---|
| 4 | 200 | 30 |
| 5 | 235 | 35 |
| 6 | 275 | 40 |
| 7 | 320 | 45 |
| 8 | 375 | 55 |
| 9 | 440 | 65 |
| 10 | 520 | 80 |
Protecto produces and sells as many helmets as it wants at a market price of $60 each, and Protecto's fixed cost is$80.
Identify the market structure in which Protecto sells helmets.
Calculate Protecto's average variable cost when it produces 4 helmets. Show your work.
Calculate Protecto's economic profit when it sells 5 helmets. Show your work.
Identify Protecto's profit-maximizing quantity of helmets. Explain your answer using marginal analysis and numbers.
Protecto is earning positive economic profit in the short run. As the market for helmets adjusts to long-run equilibrium, will the market price of helmets increase, decrease, or remain the same? Explain.
In Gurkeland, the domestic market for cucumbers is characterized by a downward-sloping demand curve and an upward-sloping supply curve, and the market for cucumbers is currently in equilibrium at a price of $20 per bushel.
Draw a correctly labeled graph of the market for cucumbers and show the equilibrium price, labeled $20, and the equilibrium quantity, labeled$Q_1$.
Suppose that Gurkeland engages in free trade with other countries and that the world price of cucumbers is $10 per bushel.
On your graph in part A, show the world price of cucumbers, labeled $10, and the quantity of cucumbers sold by domestic producers, labeled$Q_2$.
Will total economic surplus in Gurkeland increase, decrease, or remain the same after engaging in free trade?
Now suppose that the government of Gurkeland imposes a $5 tariff per bushel on the import of cucumbers.
On your graph in part A, show the new quantity of cucumbers, labeled $Q_3$, that will be sold by domestic producers as a result of the $5 tariff imposed on the import of cucumbers.
As compared with the free trade described in part B, will domestic producer surplus in the market for cucumbers increase, decrease, or remain the same as a result of the $5 tariff imposed on the import of cucumbers? Explain.