AP Microeconomics Exam

SECTION I: Multiple Choice 2017

DO NOT OPEN THIS BOOKLET UNTIL YOU ARE TOLD TO DO SO.
Instructions
At a Glance
Section I of this exam contains 60 multiple-choice questions. Fill in only the circles for
Total Time numbers 1 through 60 on your answer sheet.
1 hour, 10 minutes
Number of Questions Indicate all of your answers to the multiple-choice questions on the answer sheet. No
60 credit will be given for anything written in this exam booklet, but you may use the booklet
Percent of Total Score for notes or scratch work. After you have decided which of the suggested answers is best,
66.67% completely fill in the corresponding circle on the answer sheet. Give only one answer to
Writing Instrument each question. If you change an answer, be sure that the previous mark is erased
Pencil required completely. Here is a sample question and answer.
Electronic Device
None allowed

Use your time effectively, working as quickly as you can without losing accuracy. Do not
spend too much time on any one question. Go on to other questions and come back to
the ones you have not answered if you have time. It is not expected that everyone will
know the answers to all of the multiple-choice questions.
Your total score on the multiple-choice section is based only on the number of questions
answered correctly. Points are not deducted for incorrect answers or unanswered
questions.

Form I
Form Code 4NBP4-S

34
The inclusion of source material in this exam is not intended as an
endorsement by the College Board or ETS of the content, ideas, or
values expressed in the material. The material has been selected by
the economics faculty who serve on the AP Microeconomics
Development Committee. In their judgment, the material printed
here reflects various aspects of the course of study on which this
exam is based and is therefore appropriate to use to measure the
skills and knowledge of this course.

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 MICROECONOMICS
Section I
Time—70 minutes
60 Questions

Directions: Each of the questions or incomplete statements below is followed by five suggested answers or
completions. Select the one that is best in each case and then fill in the corresponding circle on the answer sheet.

1. An outward shift of a production possibilities curve 4. At a perfectly competitive firm’s current

can be caused by output level, average total cost is $15, average
variable cost is $10, and marginal cost is $8 and
(A) planting a more profitable farm crop
increasing. If the product price is $15, what
(B) improving technology
should this firm do to maximize profits?
(C) using idle resources
(D) changing consumer preferences (A) Increase the quantity of output produced.
(E) increasing the minimum wage (B) Increase the product price.
(C) Decrease the product price to increase sales.
2. At a price of $10, the quantity demanded of pizzas (D) Shut down immediately.
is 100 and the quantity supplied is 150. Which of (E) Continue to produce at its current output
the following statements must be true? level.
(A) There is a shortage of pizza at a price of $10.
5. The government must provide public goods
(B) The equilibrium price of pizza is below $10.
such as national defense because
(C) The quantity of pizzas sold will be 150.
(D) At equilibrium, fewer than 100 pizzas will (A) the production of public goods requires
be sold. economies of scale that the private sector
(E) The pizza market is in equilibrium. cannot achieve
(B) it is generally impossible to exclude
individuals who value public goods but
do not pay for them
(C) public goods cannot be produced in private
competitive markets, since they have
highly inelastic demand
(D) private producers charge a price that is
substantially greater than marginal cost
(E) no single individual should have to pay for
public goods, since they benefit society
as a whole

6. Which of the following will increase the demand

for pizza, a normal good?
(A) An increase in the cost of producing pizza
3. The diagram above shows Sally’s utility function (B) A decrease in the price of pizza
for chocolate. Her utility function illustrates the (C) An increase in the price of a complementary
principle of product
(D) An increase in consumers’ income
(A) trade-offs when making choices (E) An increase in the number of restaurants
(B) diminishing marginal utility selling pizza
(C) income and substitution effects
(D) increasing opportunity cost
(E) constrained utility maximization

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7. Game theory is used to explain
(A) why firms price discriminate
(B) how monopolies evolve into oligopolies
(C) strategic behavior of firms in oligopoly
(D) profit maximization in monopoly
(E) price leadership of monopolistic competition

8. If a profit-maximizing firm in a perfectly

competitive market chooses to produce in the
short run, then marginal cost is always
(A) greater than or equal to total cost
(B) greater than or equal to average total cost
(C) greater than or equal to average variable cost
(D) greater than or equal to average fixed cost
(E) less than average total cost
10. Given the demand curve above, if price decreases
from $8 to $4 per unit, total consumer surplus will
Quantity of Total Benefit (A) increase by $4
Apples ($) (B) increase by $8
(C) increase by $12
1 10 (D) increase by $18
2 18 (E) remain constant at $24
3 24 11. Which of the following describes how a market
4 28 will respond when the scarcity of a good
increases?
5 30
(A) Consumers will increase their demand for
6 31 the good.
(B) Consumers will decrease their demand for
9. The table above shows the total benefit Tony gets the good.
from eating different quantities of apples. If (C) The price of the good will increase.
apples cost $3 each, how many should he buy to (D) The price of the good will decrease.
maximize his consumer surplus? (E) Producers will increase the supply of
the good.
(A) 1
(B) 2
12. Suppose that the demand for vegetables is price
(C) 3
elastic. If the price of vegetables increases
(D) 4
by 5 percent, the quantity of vegetables
(E) 5
demanded would
(A) increase by 5 percent
(B) increase by more than 5 percent
(C) increase by less than 5 percent
(D) decrease by more than 5 percent
(E) decrease by less than 5 percent

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13. The table below lists the monthly individual Questions 15-16 are based on the chart below for a
demand schedules for text messages for the only firm that is perfectly competitive in both the labor
three buyers in the market: Allison, Bill, and and product markets, showing how much daily
Chang. output a firm can produce using different numbers
of workers.
Price Text Messages Demanded
per Text by Number of
Message Allison Bill Chang Workers Output

4¢ 500 400 360 1 3

8¢ 350 300 280 2 9

12¢ 200 200 200 3 16

16¢ 50 100 120 4 21

20¢ 0 0 40 5 23
6 24
Which of the following combinations of price and
quantity lies on the market demand curve? 15. If output sells for $20 per unit, what is the
marginal revenue product of the fifth worker?
Price Quantity
(A) $2
(A) 4¢ 1,000 (B) $40
(B) 8¢ 350 (C) $100
(C) 12¢ 200 (D) $115
(D) 16¢ 270 (E) $460
(E) 20¢ 0
16. If output sells for $20 per unit and the daily wage
is $100 per worker, how many workers should the
14. Which of the following best explains why a firm’s firm hire to maximize profit?
short-run marginal cost curve shifts down when
it purchases new, more efficient equipment and (A) 1
experiences an increase in its total cost? (B) 2
(C) 4
(A) The situation represents an exception to the (D) 5
law of diminishing returns. (E) 6
(B) The average total cost curve shifts upward
as a result of the equipment purchase, and
there is a movement up along the marginal
cost curve.
(C) The equipment purchase is a fixed cost, and
the new equipment will cause a reduction in
the cost of producing each additional unit.
(D) The average variable cost curve shifts upward
as a result of the equipment purchase, and
the marginal cost curve shifts downward.
(E) The marginal cost curve shifts downward
because of the law of diminishing returns.

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 Units of Quantity Questions 19-20 refer to the table below.
Labor of Output Total Cost
0 0 $100 The two firms in an industry are deciding whether
1 10 $120 to advertise. The profit to each firm depends on the
2 25 $150 other firm’s decision. The first entries in the matrix
below indicate the profit earned, in millions of
dollars, by Firm A; and the second entries indicate the
17. Given the information above, the average variable
profits earned, in millions of dollars, by Firm B.
cost of 25 units of output is
(A) $2 Firm B
(B) $6 Do Not
(C) $25
Advertise Advertise
(D) $50
(E) $75
Advertise $7, $1 $5, $4
Firm A
18. A typical firm in a perfectly competitive
Do Not
constant-cost industry is operating with an
Advertise $3, $2 $2, $0
economic loss in the short run. When the industry
returns to long-run equilibrium, what will happen
to the number of firms in the industry, the market
price, and the typical firm’s quantity? 19. Based on the payoff matrix, which of the
following is correct?
Number Market Firm’s
of Firms Price Quantity (A) Firm A always gets a smaller share of the
industry profits.
(A) Decrease Increase Increase (B) Firm A’s dominant strategy is to advertise.
(B) Decrease Decrease Increase (C) Firm B’s dominant strategy is not to
(C) Decrease Increase Decrease advertise.
(D) Increase Increase Decrease (D) The dominant strategy for both firms is not to
(E) Increase Decrease Decrease advertise.
(E) Neither firm has a dominant strategy.

20. The combination where Firm A advertises and

Firm B does not advertise is Nash equilibrium
because
(A) it is best for each firm given what the other
firm has chosen
(B) the total industry profits are maximized
(C) Firm A has an incentive to change its strategy
and chooses not to advertise
(D) it is the best outcome for Firm B regardless
of what firm A does
(E) advertising is always the best strategy for
Firm A

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 21. Based on the production possibilities curve for books and pencils
shown above, what is the opportunity cost of producing a book?
(A) 30 pencils
(B) 10 pencils
(C) 3 pencils
(D) 1/3 of a pencil
(E) 1/10 of a pencil

22. The demand curves X and Y are shown in the graph above.
Which of the following offers the most accurate comparison
of the price elasticities of demand curves X and Y at a price
of $4?
Demand Curve X Demand Curve Y
(A) Perfectly elastic Perfectly inelastic
(B) Perfectly inelastic Perfectly elastic
(C) Perfectly inelastic Relatively elastic
(D) Relatively inelastic Perfectly elastic
(E) Relatively elastic Relatively inelastic

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23. An art student spends all of her income on pencils 26. In a given year, Jennifer earns $50,000 and
and drawing pads. The student currently buys spends $40,000. During the same period, Steve
30 pencils at $1 each and 10 pads at $5 each. If earns $30,000 and spends $27,000. If Jennifer
the marginal utility of the 30th pencil is 100 utils and Steve both must pay a 10 percent sales tax
and the marginal utility of the 10th pad is on goods purchased, the sales tax is
400 utils, to maximize utility the student should
(A) a higher percentage of income for Jennifer
change her purchases of pencils and pads in which
than for Steve
of the following ways?
(B) a higher percentage of spending for Steve
Pencils Pads than for Jennifer
(C) progressive with respect to income
(A) Not change Buy more
(D) regressive with respect to income
(B) Buy more Buy more
(E) proportional with respect to income
(C) Buy more Buy less
(D) Buy less Buy more
27. A monopolistically competitive firm is currently
(E) Buy less Buy less
producing the profit-maximizing level of output.
If the price of a variable input increases, which
24. Assume that the current market equilibrium price
of the following will occur?
for milk is $2.80 per gallon and that 5 million
gallons are sold per day. If the government sets (A) The firm will increase its output to increase
a price ceiling of $2.00 per gallon, which of the its revenue.
following is true? (B) The firm will increase the price of its output
by the same amount.
(A) The demand for milk will increase.
(C) The firm’s average total cost and marginal
(B) The supply of milk will decrease.
cost curves will shift upward.
(C) There will be an excess supply of milk
(D) The firm’s average fixed cost will decrease as
in the market.
it decreases production.
(D) More than 5 million gallons of milk will
(E) The firm’s fixed cost will increase, but its
be sold.
output level will be unaffected.
(E) Less than 5 million gallons of milk will
be sold.
28. The table below shows the long-run total cost
function of a firm.
25. Which of the following is most likely to cause the
demand curve for nurses to shift to the right? Quantity of Output Total Cost ($)
(A) An increase in the number of nurses 0 0
graduating from nursing schools
(B) An increase in nursing schools’ tuition 1 10
(C) An increase in the number of hospitals that 2 20
employ nurses
(D) A decrease in the marginal productivity 3 30
of nurses 4 40
(E) An improvement in the health of older people
5 50

The firm’s cost function exhibits

(A) diseconomies of scale
(B) constant returns to scale
(C) economies of scale
(D) decreasing marginal cost
(E) increasing marginal cost

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Questions 29-30 are based on the following graph, Labor Hours Required to
which shows a firm’s marginal cost (MC), average Produce
total cost (ATC), and average variable cost (AVC). One Pair of One Loaf of
Shoes Bread
Mr. X 5 hours 1 hour
Ms. Y 2 hours 0.5 hour

31. According to the data above, if Mr. X and Ms. Y

have the opportunity to trade, which of the
following will be mutually beneficial?
(A) Ms. Y sells shoes to and buys bread
from Mr. X.
(B) Ms. Y sells bread to and buys shoes
from Mr. X.
(C) Ms. Y sells both bread and shoes to Mr. X.
(D) Ms. Y buys both bread and shoes
29. In the short run, the firm will from Mr. X.
(E) Ms. Y and Mr. X do not trade with
(A) shut down if the price falls below P3 each other.
(B) continue to produce as long as the price
is greater than P1 32. If the government eliminates an effective
(C) continue to produce as long as the price minimum wage in a competitive labor market,
is greater than P2 which of the following is true?
(D) earn economic profits as long as the price (A) Minimum wage workers will experience
is greater than P2 no change in hourly pay.
(E) cover its fixed cost as long as the price (B) Minimum wage workers will experience
is less than P3 a decrease in hourly pay.
(C) The number of people employed will
30. The firm’s short-run supply curve is which of the decrease because people do not want to
following? work for low wages.
(D) There will be an excess demand for workers.
(A) The AVC curve above P1 (E) There will be an increase in the supply of
(B) The AVC curve above P2 workers.
(C) The ATC curve above P3
(D) The MC curve above P2 33. Carmen consumes both entertainment and
(E) The MC curve above P3 medical care. For Carmen, entertainment is a
normal good, and the income elasticity of her
demand for medical care is zero. If Carmen’s
income increases, which of the following will be
the immediate impact on her consumption?
Entertainment Medical Care
(A) Increase Increase
(B) Increase No change
(C) No change Increase
(D) Increase Decrease
(E) Decrease Increase

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34. Assume that a perfectly competitive firm is in 35. One difference between oligopolies and
long-run equilibrium. If industry demand for monopolistically competitive markets is that
the product increases, how will this firm’s price,
(A) there is no deadweight loss in
output, and profit change in the short run?
monopolistically competitive markets, but
Price Output Profit there is in oligopolies
(B) the products sold in monopolistically
(A) Increase Increase Increase
competitive markets are identical
(B) Increase Decrease Decrease
(C) oligopolies have fewer barriers to entry
(C) Increase Increase Decrease
(D) firms maximize profits in monopolistically
(D) No change Decrease Decrease
competitive markets but not in oligopolies
(E) Decrease Increase Increase
(E) there are fewer firms in oligopolistic markets
than in monopolistically competitive ones

Questions 36-37 refer to the following diagram of a natural monopolist.

36. The firm shown in the diagram above qualifies 37. If government regulated the natural monopoly
as a natural monopoly because to produce the output resulting in zero economic
profit, then the output would be
(A) the demand curve is downward sloping
(B) the demand curve lies above the marginal (A) Q1
revenue curve (B) Q2
(C) the average total cost is decreasing in
(C) Q3
the relevant range of market demand
(D) the firm can maximize profit with any (D) Q4
output level it chooses (E) Q5
(E) marginal revenue is positive at
the profit-maximizing output level

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38. Which of the following characteristics is prevalent 42. If a perfectly competitive market with no
in oligopolies? government intervention is allocatively efficient,
which of the following must be true?
(A) Allocative efficiency
(B) Low barriers of entry (A) Consumer surplus plus producer surplus is at
(C) Consideration of rivals’ reactions its maximum.
(D) No deadweight loss (B) Consumer surplus is larger than producer
(E) Zero economic profit surplus.
(C) Producer surplus is larger than consumer
39. A firm uses capital and labor in its production surplus.
process. The marginal product for the last unit (D) All surplus is producer surplus.
of labor is 5, the marginal product for the last unit (E) All surplus is consumer surplus.
of capital is 10, and the wage is $10. At what cost
of hiring each unit of capital would the firm be Questions 43-44 are based on the output and cost
minimizing the cost of the current output? data in the table below.
(A) $5
(B) $10 Quantity of
(C) $15 Output Total Variable Total Cost ($)
(D) $20 Produced Cost ($)
(E) $50 (units)
1 100 200
40. Which of the following must be true if a 2 190 290
profit-maximizing monopolistically competitive 3 270 370
firm continues to operate in the short run while 4 340 440
incurring a loss? 5 420 520
(A) Marginal revenue equals marginal cost and 6 510 610
price is greater than average total cost. 7 610 710
(B) Marginal revenue equals marginal cost and
price is greater than average variable cost. 43. According to the cost schedule in the table above,
(C) Marginal revenue equals marginal cost and the firm’s total fixed cost is
price is less than average variable cost. (A) increasing
(D) Price equals both marginal cost and marginal (B) decreasing
revenue. (C) $90
(E) Price is less than marginal revenue, but (D) $100
greater than average variable cost. (E) impossible to determine
41. Marginal analysis suggests that an individual will 44. If there is only one variable input, diminishing
consume one additional unit of a good if the marginal returns first occur with the production
(A) sunk cost can be recovered of which unit of output?
(B) total benefit is less than the total cost (A) 7th
(C) total benefit is greater than the total cost (B) 6th
(D) additional benefit is less than the (C) 5th
additional cost (D) 4th
(E) additional benefit is greater than the (E) 3rd
additional cost

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45. Max employs both labor and capital to produce Questions 47-48 refer to the following graph,
toy trains. Currently the last unit of labor which shows the cost and revenue curves
employed has a marginal product of 15 units. for a profit-maximizing monopolistically
The last unit of capital employed has a marginal competitive firm.
product of 40 units. The price of labor is $3
per unit, and the price of capital is $10 per unit.
Which of the following employment decisions
should Max follow to use the least-cost
combination of labor and capital to produce
the current quantity of toy trains?

Employment Employment
of Labor of Capital
(A) Increase No change
(B) Decrease Increase
(C) Decrease Decrease
(D) Increase Increase
(E) Increase Decrease

46. Good X is produced in a perfectly competitive

industry in long-run equilibrium. If the
consumption of good X generates positive
externalities, the private market will produce 47. What is the profit-maximizing price and quantity?
(A) less than the socially optimum amount Price Quantity
of good X (A) P1 Q1
(B) more than the socially optimum amount (B) P2 Q4
of good X (C) P3 Q3
(C) the socially optimum amount of good X (D) P4 Q2
(D) good X only if the government grants (E) P5 Q1
a subsidy for the production of good X
(E) good X only if the government levies a 48. Is the firm in short-run or long-run equilibrium?
corrective tax on the production of good X (A) Short run, because price is greater than
marginal cost
(B) Short run, because the firm is earning a
positive economic profit
(C) Long run, because price is greater than
average total cost
(D) Long run, because marginal revenue is not
equal to zero
(E) Either short run or long run, because the firm
is producing where marginal revenue equals
marginal cost

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49. Which of the following is true of a firm in a 52. Suppose that the government imposes a per-unit
perfectly competitive industry? tax on the producers of a good that has a perfectly
inelastic demand. After the tax, the price and
(A) It faces a perfectly elastic demand curve.
quantity of the good sold would change in which
(B) It faces a downward-sloping demand curve.
of the following ways?
(C) It will increase its total revenue if it increases
the selling price of its product. Price Quantity
(D) Its cost could be greatly reduced if it did not (A) Increase Increase
have to advertise its product. (B) Increase Decrease
(E) It sets the price of its product at the level at (C) Increase Not change
which profits are maximized or losses are (D) Not change Increase
minimized. (E) Decrease Not change

53. When the marginal cost curve lies below the

average total cost curve, it is true that as output
increases
(A) marginal cost is decreasing
(B) marginal cost is increasing
(C) average total cost is decreasing
(D) average total cost is increasing
(E) average variable cost is decreasing

54. Assume that the government imposes an excise

tax on the consumption of a good. The tax will
have the least impact on the market equilibrium
quantity for which of the following combinations
of the price elasticities of demand and supply?
Absolute Value of
Elasticity of Demand Elasticity of Supply
50. In the diagram above, the deadweight loss from
a profit-maximizing monopolist is represented (A) 4 4
by area (B) 4 0.50
(C) 1 1
(A) FGK (D) 0.50 4
(B) FHI (E) 0.50 0.50
(C) IJK
(D) GHIK
(E) 0HIQ 55. The monopsonist’s marginal factor (resource) cost
curve for labor is
51. As the population of a country ages, the demand
for health care is projected to increase. As a result, (A) above the labor supply curve because the
the health care industry is likely to experience all product price is found on the demand curve
of the following EXCEPT above where marginal cost equals marginal
revenue
(A) an increase in demand for health care workers (B) above the labor supply curve because to hire
(B) an increase in demand for medicine more workers the firm must raise the wage
(C) an increase in the quantity of health care for all workers
workers supplied (C) below the labor supply curve because the
(D) an increase in the wages of health care firm is a wage taker
workers (D) below the labor supply curve because of
(E) a decrease in the prices of medicine diminishing marginal returns to labor
(E) below the labor supply curve because to
sell additional units of output the firm
must lower its product price

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56. Which of the following best demonstrates 58. The Lorenz curve is used to study the
nonrivalry in consumption?
(A) relationship between output and
(A) Occupying a seat in a sold-out movie theatre unemployment
(B) Sharing rent equally among roommates (B) relationship between income and
(C) Catching fish in a local pond consumption
(D) Playing golf on a crowded public golf course (C) extent of income inequality within a society
(E) Listening to a radio program (D) incidence of an excise tax on buyers and
sellers in a market
(E) impact of foreign trade on domestic
production of goods

Item 57 was not scored. 59. An effective minimum wage policy in a

competitive market will increase unemployment
and increase the total earnings of labor only if the
demand for labor is
(A) relatively inelastic
(B) relatively elastic
(C) unit elastic
(D) greater than the supply
(E) positively related to the wage rate

60. Compared with a perfectly competitive market,

a single-price monopoly with the same market
demand and cost curves will
(A) increase output and price
(B) increase output and decrease price
(C) decrease output and price
(D) decrease output and increase price
(E) produce the same level of output and increase
price

END OF SECTION I

IF YOU FINISH BEFORE TIME IS CALLED, YOU MAY

CHECK YOUR WORK ON THIS SECTION.

DO NOT GO ON TO SECTION II UNTIL YOU ARE TOLD TO DO SO.

MAKE SURE YOU HAVE DONE THE FOLLOWING.

• PLACED YOUR AP NUMBER LABEL ON YOUR ANSWER SHEET

• WRITTEN AND GRIDDED YOUR AP NUMBER CORRECTLY ON YOUR

ANSWER SHEET

• TAKEN THE AP EXAM LABEL FROM THE FRONT OF THIS BOOKLET

AND PLACED IT ON YOUR ANSWER SHEET

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Section II: Free-Response Questions

This is the free-response section of the 201 AP exam.

It includes cover material and other administrative instructions
to help familiarize students with the mechanics of the exam.
(Note that future exams may differ in look from the following content.)
AP Microeconomics Exam
®

SECTION II: Free Response 2017

DO NOT OPEN THIS BOOKLET UNTIL YOU ARE TOLD TO DO SO.

At a Glance
Total Time
1 hour
Number of Questions
3
Percent of Total Score
33.33%
Writing Instrument
Pen with black or dark
blue ink
Electronic Device
None allowed

Reading Period
Time
10 minutes. Use this
time to read the Instructions
questions and plan your
answers.You may begin The questions for Section II are printed in this booklet. You may use page 3 and the pages
writing your responses the questions are printed on to organize your answers and for scratch work, but you must
before the reading
period is over. write your answers on the lined pages provided for each question.

Writing Period The proctor will announce the beginning and end of the reading period. You are advised
to spend the 10-minute period reading all the questions and planning your answers. You
Time may begin writing your responses before the reading period is over.
50 minutes
Write clearly and legibly. Do not skip lines. Cross out any errors you make; crossed-out
Question 1
work will not be scored.
Suggested Time
25 minutes Manage your time carefully. You may proceed freely from one question to the next. You
Percent of Section II Score may review your responses if you finish before the end of the exam is announced.
50%

Question 2
Suggested Time
12.5 minutes
Percent of Section II Score
25%
Question 3
Suggested Time
12.5 minutes
Percent of Section II Score
25%

Form I
Form Code 4NBP4-S

34
 MICROECONOMICS
Section II
Total Time—60 minutes
Reading Period—10 minutes
Writing Period—50 minutes

Directions: You are advised to spend the first 10 minutes reading all of the questions and planning your
answers. You will then have 50 minutes to answer all three of the following questions. You may begin
writing your responses before the reading period is over. It is suggested that you spend approximately half
your time on the first question and divide the remaining time equally between the next two questions.
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled
diagram must have all axes and curves clearly labeled and must show directional changes. Use a pen with
black or dark blue ink.

Question 1 begins on page 4.

Question 2 begins on page 10.
Question 3 begins on page 14.

THIS PAGE MAY BE USED FOR TAKING NOTES AND PLANNING YOUR ANSWERS.
NOTES WRITTEN ON THIS PAGE WILL NOT BE SCORED.
WRITE ALL YOUR RESPONSES ON THE LINED PAGES.

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1. Joyce owns a gas station and monopolizes gas sales along a remote stretch of road. In February, Joyce stayed
open even though she earned negative economic profits.
(a) Draw a correctly labeled graph for Joyce’s gas station during February and show each of the following.
(i) The profit-maximizing output and price, labeled QJ and PJ
(ii) The average total cost curve, labeled ATC
(iii) Deadweight loss, completely shaded
(b) What must have been true for Joyce to continue operating during the month of February even though she
earned negative economic profit?
(c) Assume that fixed costs for Joyce’s gas station decrease. Would Joyce’s profit-maximizing quantity
increase, decrease, or stay the same in February? Explain.
(d) During the month of July, demand increases so that Joyce now earns a positive economic profit. However,
she realizes her profits would have been higher if she had reduced the price of gasoline.
(i) At the quantity sold in July, was marginal revenue greater than, equal to, or less than marginal cost?
(ii) Would the price decrease cause quantity demanded to increase, decrease, or stay the same?
(iii) Would the price decrease cause the total revenue to increase, decrease, or stay the same? Explain.

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ANSWER PAGE FOR QUESTION 1

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Question 1 is reprinted for your convenience.

1. Joyce owns a gas station and monopolizes gas sales along a remote stretch of road. In February, Joyce stayed
open even though she earned negative economic profits.
(a) Draw a correctly labeled graph for Joyce’s gas station during February and show each of the following.
(i) The profit-maximizing output and price, labeled QJ and PJ
(ii) The average total cost curve, labeled ATC
(iii) Deadweight loss, completely shaded
(b) What must have been true for Joyce to continue operating during the month of February even though she
earned negative economic profit?
(c) Assume that fixed costs for Joyce’s gas station decrease. Would Joyce’s profit-maximizing quantity
increase, decrease, or stay the same in February? Explain.
(d) During the month of July, demand increases so that Joyce now earns a positive economic profit. However,
she realizes her profits would have been higher if she had reduced the price of gasoline.
(i) At the quantity sold in July, was marginal revenue greater than, equal to, or less than marginal cost?
(ii) Would the price decrease cause quantity demanded to increase, decrease, or stay the same?
(iii) Would the price decrease cause the total revenue to increase, decrease, or stay the same? Explain.

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ADDITIONAL PAGE FOR ANSWERING QUESTION 1

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ADDITIONAL PAGE FOR ANSWERING QUESTION 1

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ADDITIONAL PAGE FOR ANSWERING QUESTION 1

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2. Brody’s firm produces trumpets in a perfectly competitive market. The table below shows Brody’s total variable
cost. He has a fixed cost of $240, and the price per trumpet is $60.

Total Variable
Quantity
Cost
6 $120
7 $145
8 $165
9 $220
10 $290
11 $390

(a) Calculate the average total cost of producing 6 trumpets. Show your work.
(b) Calculate the marginal cost of producing the 11th trumpet.
(c) What is Brody’s profit-maximizing quantity? Use marginal analysis to explain your answer.
(d) At the profit-maximizing quantity you determined in part (c), calculate Brody’s profit or loss.
Show your work.
(e) Brody also produces saxophones at a loss in a perfectly competitive market. Draw a correctly labeled graph
for Brody’s firm showing the following at a market price of $200.
(i) Brody’s profit-maximizing quantity of saxophones
(ii) Brody’s loss, completely shaded

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ANSWER PAGE FOR QUESTION 2

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ADDITIONAL PAGE FOR ANSWERING QUESTION 2

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ADDITIONAL PAGE FOR ANSWERING QUESTION 2

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3. The market supply and demand for a product are shown in the diagram below.

(a) Is the price elasticity of supply less than one, equal to one, or greater than one? Explain.
(b) Calculate consumer surplus at the equilibrium price. Show your work.
(c) Now suppose the government imposes a per-unit tax of $1 on producers.
(i) What happens to total revenue received by producers after they pay the tax to the government?
Explain.
(ii) Will producer surplus increase, decrease, or stay the same?
(iii) Will total surplus increase, decrease, or stay the same? Explain.

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ANSWER PAGE FOR QUESTION 3

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ADDITIONAL PAGE FOR ANSWERING QUESTION 3

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ADDITIONAL PAGE FOR ANSWERING QUESTION 3

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 STOP

END OF EXAM

THE FOLLOWING INSTRUCTIONS APPLY TO THE COVERS OF THE

SECTION II BOOKLET.

• MAKE SURE YOU HAVE COMPLETED THE IDENTIFICATION

INFORMATION AS REQUESTED ON THE FRONT AND BACK
COVERS OF THE SECTION II BOOKLET.

• CHECK TO SEE THAT YOUR AP NUMBER LABEL APPEARS IN

THE BOX ON THE COVER.

• MAKE SURE YOU HAVE USED THE SAME SET OF AP

NUMBER LABELS ON ALL AP EXAMS YOU HAVE TAKEN
THIS YEAR.

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