AP Micro 2016

Two alternative production possibility frontiers for apples and wheat are shown in the figures below.

As more wheat is produced, how will the opportunity cost of producing wheat, as represented in Figures 1 and 2, be affected?

Figure 1

Figure 2

If an effective rent ceiling is eliminated, which of the following is most likely to occur in the rental housing market?

Assume that the market for lemonade is perfectly competitive and currently in equilibrium. Lemons are key ingredients in lemonade. If the price of lemons decreases, how will the lemonade market be affected?

When marginal utility is falling but positive, total utility will

The reason that firms in perfect competition earn zero economic profit in the long run is that

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing

The graph above shows the marginal product average product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input and hires its labor in a perfectly competitive market. At which quantity of labor does marginal cost change from decreasing to increasing?

A contractor is employing labor and capital to build an office complex. At the current mix of inputs, the marginal product of labor is 30 square feet per day, and the marginal product of capital is 90 square feet per day. The price of labor is $1,000 per day, and the price of capital is $3,000 per day. To hire inputs in a cost-minimizing way, the firm should

A single-price monopolist is currently producing in the inelastic portion of its market demand curve. In order to maximize profits, the monopolist should change the price and output in which of the following ways?
 Price

Output

Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true?

The demand curve for a monopolistically competitive firm is downward sloping because

Which of the following is true of a perfectly competitive firm in long-run equilibrium?

Game theory is most commonly used for analyzing the pricing behavior of firms in which market structure?

If the production of good X creates a positive externality, then from society’s perspective, the industry that produces good X tends to produce

If the goal of government regulators of a natural monopoly is to reduce deadweight loss without subsidizing the monopolist, government regulators would set a price equal to

A production possibilities curve can shift inward if there is

A country produces computers and rice. If resources are fully employed and there is technological progress only in the production of rice, the opportunity costs of producing computers and rice will change in which of the following ways?
Opportunity Cost of Computers

Opportunity Cost of Rice

In the graph above, S is the original supply curve, and S₁ is the supply curve including an excise tax. The area representing the tax revenue to the government is

Which of the following would cause the supply curve for notebook computers to shift to the right?

A perfectly competitive market in equilibrium is allocatively efficient and it maximizes

Based on the cost and output data in the table above, a perfectly competitive firm will shut down if price falls below

Shelby is an entrepreneur who has decided to open a small advertising firm. She rents office space at a cost of $25,000 per year, she has employed an assistant at a salary of $30,000 per year, and she incurs annual utility and office supply expenses of $20,000. Her best alternative is to work elsewhere and to earn a salary of $50,000 per year. How much annual revenue must her firm receive so that Shelby earns zero economic profit?

A firm produces 400 books and sells each book for $15. If the explicit cost of producing the books is $4,500 and the implicit cost is $1,000, the firm’s economic profit is

For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $10 and the average variable cost is $8. If the market price for its product is $10, which of the following is true for the firm?

The profit-maximizing combination of output and price for a single-price monopoly is

If the monopolist could engage in perfect price discrimination, the monopolist’s total output and the price charged for the last unit of output sold would be

If a large number of unskilled workers enter the labor market, which of the following is most likely to occur in the labor market for unskilled workers?

Assume that a profit-maximizing, perfectly competitive firm hires labor in a perfectly competitive labor market. If the market wage is $12 per hour and the price of the product is $3 per unit, the firm will

Antitrust policy seeks to prevent or eliminate which of the following practices?

National defense is a good example of a pure public good because it is

The table above shows the maximum number of palm leaves or coconuts that Robert and Frank can pick respectively in a single day. Which of the following is true?

Relative to a command economy, resources in a market economy are more commonly allocated by

If a 10 percent increase in the price of a good leads to a 25 percent decrease in the quantity demanded of the good, demand is

For an inferior good, an increase in consumer income will cause

Which of the following will cause the demand curve for good X to shift to the right?

One reason consumers typically increase the quantity of a good they purchase when the price of the good decreases is that

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?

Assume that a firm uses labor and capital to produce a product. The firm hires labor at a wage rate of $4 per unit and rents capital at $5 per unit. At its current output level, the marginal physical products of labor and capital are 20 and 30 units, respectively. To minimize its cost of production without changing the level of output, the firm should

E Soda and R Soda are the only two firms in the soft-drink industry. The companies cannot cooperate. Each firm can follow a high-price strategy or a low-price strategy for pricing its product. In the payoff matrix below, the first entry in each cell shows the profits to E Soda and the second entry shows the profits to R Soda.

Given the information in the payoff matrix, it can be concluded that

A firm with market power engages in price discrimination to

Reff Corp is a firm with total revenue of $1,000, marginal cost of $5, and average variable cost of $4. Both the output and the input markets are perfectly competitive, and Reff Corp is currently in long-run equilibrium. Reff Corp’s output and total fixed cost of production must be equal to which of the following?

Output

Fixed Cost

Based on the table for a perfectly competitive firm above, if the wage rate for labor is $15, how many units of labor should the firm hire?

Assume labor and capital are substitute inputs. A manufacturer will employ more labor if

Assume that the firms in an industry pollute a river. If there is no government intervention, the firms will

The following table shows Kent’s annual income over two years and the income taxes paid in each year.

With no changes in the marginal tax-rate schedule, which of the following is true about the tax rates?

Dana and Robin produce smoothies and pizza. In one hour Dana can make 20 smoothies or 10 pizzas. In one hour Robin can make 18 smoothies or 6 pizzas. Which of the following statements is true?

In which of the following cases would a firm’s total revenue increase?

In the diagram above, if there is a price ceiling set at P₁, consumer surplus will be represented by the area

Consumer surplus in a market for a good exists because

Assume Pat spends all of her allowance to purchase 4 apples and 4 candy bars. Pat’s marginal utility of the fourth apple is 20 utils, and her marginal utility of the fourth candy bar is 40 utils. If an apple costs $1.00 and a candy bar $0.50, to maximize utility Pat should

A firm is producing 100 units of output at a total cost of $400. The firm’s average variable cost is $3 per unit. What is the firm’s total fixed cost?

A profit-maximizing firm will shut down in the short run any time the firm’s total revenue is less than its

Assume that the fixed cost is $50. Based on the cost and output data in the table above, what is the marginal cost when the firm increases its output from three to four units and the average total cost of producing 4 units?
Marginal Cost 

Average Total Cost

Evergreen and Nature View are bidding for a landscaping contract. The payoff matrix above shows what each firm’s total weekly profits from all its operations will be for each combination of bids. The first entry in each cell shows Evergreen’s profit, and the second entry in each cell shows Nature View’s profit. A Nash equilibrium results under which of the following conditions?

Suppose that the demand for soft drinks is price elastic and the supply is price inelastic. If the government imposes a sales tax on soft drinks, which of the following will occur in the short run?

If both supply and demand for wheat increase, the equilibrium price and quantity of wheat will most likely change in which of the following ways?
Price

Quantity

The last worker currently employed by a firm has a marginal product of 3 units per hour and is paid $20 per hour. Assuming that both the labor market and product market are perfectly competitive and that the product’s price is $5 per unit, the firm should do which of the following?

Hope Hospital is a monopsonistic employer of nurses. The marginal revenue product of nursing services, the marginal factor (resource) cost of nursing services, and the market supply curve of nursing services are depicted in the figure above by MRP, MFC, and S, respectively. What wage quantity combination does Hope Hospital choose in order to maximize its profits?

The table above shows the short-run output for a perfectly competitive firm. If the price of the product is $10, what is the marginal revenue product of the third worker hired?

Which of the following is true based on the graph above?

Kohelis Mining is a monopoly and is currently operating at a loss.
(a) Draw a correctly labeled graph and show each of the following.
(i) The profit-maximizing quantity, labeled Q_M
(ii) The profit-maximizing price, labeled P_M
(iii) The average total cost curve, labeled ATC
(iv) The allocatively efficient quantity, labeled Q_A
(b) Suppose the government grants Kohelis Mining a lump-sum subsidy such that the firm earns zero economic profit.
(i) On your graph from part (a), shade the area of the subsidy.
(ii) Will the profit-maximizing quantity increase, decrease, or remain the same? Explain.
(c) Suppose instead the government provides Kohelis Mining a per-unit subsidy such that the firm earns zero economic profit.
(i) Will the profit-maximizing quantity increase, decrease, or remain the same? Explain.
(ii) Will the price paid by consumers increase, decrease, or remain the same?
(d) In this market, will the lump-sum or the per-unit subsidy lead to an increase in the total consumer surplus, or is the change indeterminate? Explain.

(a) Calculate the marginal benefit Kerri receives from buying the third volleyball. 
(b) Assume the price of each volleyball is $9. 
(i) Calculate Kerri’s total consumer surplus if she buys two volleyballs. Show your work. 
(ii) How many volleyballs should Kerri buy to maximize her total consumer surplus from volleyballs? Explain using marginal analysis. 
(c) Assume that the market for volleyballs is perfectly competitive and that soccer balls are a substitute for volleyballs. 
(i) Draw a correctly labeled graph of the market for volleyballs, and label the equilibrium price as P₁ and the equilibrium quantity as Q₁. 
(ii) If the price of soccer balls decreases, show the effect on the equilibrium price and quantity of volleyballs on your graph in part c(i). 
(d) Assume instead that a 10 percent increase in income causes the demand for volleyballs to fall by 5 percent. 
(i) Calculate the income elasticity of demand for volleyballs. 
(ii) Does the value of the income elasticity indicate that volleyballs are a normal good or an inferior good? Explain.

CleanIt is a perfectly competitive, profit-maximizing trash collection firm. CleanIt hires workers in a perfectly competitive labor market. 
(a) Draw side-by-side graphs for the labor market and for CleanIt and show each of the following. 
(i) The market wage, labeled W , and the quantity of workers hired in the market, labeled LM 
(ii) The marginal factor (resource) cost curve, labeled MFC 
(iii) The marginal revenue product curve, labeled MRP 
(iv) The wage paid by the firm, labeled WF, and the quantity of workers hired by the firm, labeled LF 
(b) Assume that CleanIt is the only firm in the industry to adopt a new technology. The new technology increases the productivity of CleanIt’s workers. 
(i) In the short run, will the wage paid by CleanIt be higher than, lower than, or equal to WF? Explain. 
(ii) In the short run, will the number of workers hired by CleanIt increase, decrease, or stay the same? Explain. 
(c) CleanIt uses capital in the form of trucks, which it rents for $10,000 each. The marginal product of the last truck used is 100,000 units. If CleanIt is minimizing its costs and the marginal product of the last worker hired is 500 units, calculate the wage. Show your work.