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Unit 3 FRQs

Microeconomics Unit 3 Free Response Questions

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113 views1 page

Unit 3 FRQs

Microeconomics Unit 3 Free Response Questions

Uploaded by

yiqingyukiyang0629
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Microeconomics Unit 3

Free Response Questions


FRQ #1- The table below shows the short-run total cost function for a typical firm in a perfectly competitive market.
Quantity 0 1 2 3 4 5 6
Total Cost $20 $30 $34 $42 $52 $72 $107
(a) Identify the dollar value of the firm’s total fixed cost.
(b) Calculate each of the following.
(i) The average total cost of producing 4 units. Show your work.
(ii) The average variable cost of producing 2 units. Show your work.
(c) Complete the following assuming that the price of the product is $25.
(i) Identify the firm’s profit-maximizing quantity. Explain how you determined your answer.
(ii) Calculate the firm’s profit or loss at the profit maximizing quantity. Show your work.
(d) Based on your answers in part (c) (ii), explain what will happen to the number of firms in the industry in the long
run.
(e) If the price of the product fell to $6, should this firm shut down in the short run? Explain.

FRQ #2- Assume that avocados are produced in a constant-cost perfectly competitive market and that Antonio is a
typical avocado farmer earning zero economic profit. Also assume that avocados are used to produce guacamole.
(a) If Antonio raises the price of his avocados, what will happen to his total revenue? Explain.
(b) Draw correctly labeled side-by-side graphs for the avocado market and Antonio’s firm. On your graphs show each
of the following.
(i) The equilibrium price and quantity in the market, labeled PM and QM.
(ii) The profit-maximizing quantity of Antonio’s firm, labeled QF.
(c) Assume that the demand for guacamole decreases. On your graphs in part (b) show what will happen to each of
the following in the short run.
(i) The market price and quantity of avocados, labeled P1 and Q1.
(ii) The area of the profit or loss earned by Antonio, shaded completely.
(d) Relative to P1, will the market equilibrium price increase, decrease, or stay the same in the long run? Explain.
(e) Assume that the avocado market has reached a new long-run equilibrium. Identify what will happen to each of the
following if there is an increase in the demand for guacamole.
(i) The market price and quantity of avocados in the long run. Explain.
(ii) The price and quantity of Antonio’s avocados in the short run.

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