Econowaugh AP: 04/15/20

Wednesday, April 15, 2020

ALL Monopoly FRQ's

ALL Monopoly FRQ's

2019 AP Microeconomics Exam (Set 1)

(A.) Draw a graph of the monopoly showing the following.

(i) Profit-Maximizing quantity

(ii) Profit Maximizing price

(iii) Shade DWL

(iV) Maximum quantity that Fillup would earn zero economic profit labelled Qz.

(B.) Fillups fixed costs increase, will each of the following increase, decrease or stay the same?

(i) DWL, Explain.

Fixed costs do not effect the MC curve

therefore the quantity can't change and if quantity doesn't change

then DWL can't change.

(ii) FillUp's economic profit.

As fixed costs increase the ATC will shift up

profit will decrease.

(C.) Assume the demand for gas decreases as people bike to work.

(i) What must be true for FillUp to continue operating in the short run?

The shut-down point is where the P=min of the AVC

As long as the price is above the minimum of the AVC FillUp should keep operating

(ii) What happens to FillUps profit maximizing price and quantity in the short run assuming they continue to operate?

If demand decreases then the price and quantity must decrease.

2019 AP Microeconomics Exam (Set 2)

(A.) Draw a graph showing the following.

(i) Quantity

(ii) Price

(iii) ATC curve

(iv) Area representing the CS shaded,

(B.) Suppose the Demand for prescription drugs increases and Gigantic hires its workers in a perfectly competitive labor market.

(i) What will happen to Gigantic's demand for warehouse workers? Explain.

If demand increases then the price for prescription drugs will increase

The DL (Demand for Labor) or the MRP (Marginal Revenue Product)

increase when the PG (Price of the Good) increases

If the MRP (DL) increase more labor is hired

(ii) What will happen to the wage rate Gigantic pays its workers and the quantity of workers hired?

Since Gigantic has a patent, it is the only producer of the drug

in the market

Therefore as its Drug Price increases the rest of the market is unaffected

as Gigantic is a wage taker,,

if the market wage doesn't change then Gigantic's wages also do not change

its own MRP will Increase (shift right) it will hire more workers but feel

no pressure to raise their wages.

(C.) Gigantic's patent has expired, and other firms enter the market and produce an identical drug at a lower price.

(i) What will happen to Gigantic's producer surplus.

As price falls the producer surplus will decrease.

Producer Surplus = area under the price but above the supply curve

(ii) What will happen to Consumer Surplus ? Explain.

Consumer Surplus is the area above the price but below the Demand curve

If price falls consumer surplus must increase.

2018 AP Microeconomics Exam

(A.) Draw a graph,
(i) Price & Quantity,
(ii) Area of profit (neg profit or Loss)

(B.) Explain why Single continues to operate in the short-run despite earning neg profits.

To continue to operate Single's price must remain above the minimum of the AVC

as where P= min AVC is the shut down point

(C.) Why would Single's total revenue increase, decrease or stay the same if it decides to sell one fewer ticket? Explain.

A monopolist can choose its price or quantity but not both

if it produces less quantity it will raise its price

if it raises its price while in the elastic section of its demand curve

then its total revenue will fall (decrease)

The trick here is to know what section of the demand curve is elastic/inelastic

Unit elastic is where MR = 0

Draw a line straight up, that part of the demand curve is unit elastic

to the right is inelastic

to the left is elastic

(D.) Single hires workers in a perfectly competitive labor market suppose numbers of workers in the market decreases.

(i) What will happen to the wage rate? Explain.

If the SL in the market decreases the wage rate will increase for all firms

(ii) What will happen to the MRP of the last worker hired? Explain.

The last worker hired has a higher MRP

2014 AP Microeconomics Exam

(A.) Identify each of the following for the profit-maximizing monopolist,
(i) Quantity = 4
(ii) Price = 40
(iii) Allocatively efficient quantity = P=MC = 8

(B.) At the profit maximizing quantity from part (a)(i), is the monopolist experiencing economies of scale? Explain.

The monopolist is experiencing constant returns to scale as the LRATC curve is horizontal.

(C.) Now assume the monopolist produces ten units. Calculate each of the following.

(i) Monopolists economic profit

TR = P X Q

P = $10 & Q = 10 TR = $100

TC = ATC X 10 or $20 X 10 = $200

TR - TC = Profits

$200 - $100 = - $100

(ii) Consumer surplus

Consumer surplus is the area above the price and below the Demand Curve

Area of Triangle = 1/2 b*h

60-10 = 50 = height

base = 10

(50 x 10) = $500/2 = $250

(iii) The Deadweight loss

h*b/2

10 x 2 = $20/2 = $10

(D.) At what point is the Demand curve Unit Elastic?

(E.) Suppose the monopolist chooses to Price Discriminate and chooses the quantity that maximizes profit.

Determine the dollar value of the following.

(i) The Monopolist's Profit

Understand that the Price Discriminating monopolist charges the highest price

for every unit of quantity sold.

Therefore

the MR curve matches the D curve.

They become the same MRDARP curve.

Profit is the area above the price and below the Demand curve

40 x 8/2 = $160

(ii) Consumer Surplus

The Price Discriminating Monopolist

charges the highest price for each quantity sold

therefore CS = 0

2013 AP Microeconomics Exam

(A.) Assume the profit max monopolist is unregulated (profit maximizing), identify each of the following.
(i) Quantity = Q1
(ii) Price = P3
(iii) Profit earned = P1, P3, a, c
(iv) DWL = a, c, f

(B.) Now assume the monopolist can perfectly price discriminate, identify each of the following.
(i) Quantity produced.

The Monopolist who Price Discriminates charges the highest price for each quantity sold

therefore the MR curve matches the Demand curve

the firm produces to where the MR = MC

at Q3

(ii) Total Revenue

Total Revenue is P X Q

P4, f, Q3, 0

(C.) Now assume the monopolist charges a single price (profit max) and is regulated to produce the socially efficient quantity, using the graph identify the following.

(i) socially efficient quantity = Q3

Social Efficient Quantity = Allocative Efficiency = P = MC

(ii) Consumer Surplus at the Socially Efficient Quantity

Consumer Surplus is the area above the price and below the Demand Curve

P1, P4, f

(D.) Is the regulated monopolist (part (c)) earning a positive, zero or incurring a loss? Explain.

If the Monopolist is producing the Socially Efficient Quantity above

the price is equal to the ATC

so the monopolist is earning Zero Economic Profits

also called a Normal Profit

(E.) Is point F inelastic, elastic or unit elastic section of the demand curve? Explain.

Unit elasticity on the demand Curve is where the MR = 0

This monopolist is producing at Q3 where MR = Negative

It's in the inelastic section

2012 AP Microeconomics Exam

(A.)

(B.) If Steve raises the Price above Pm, would total revenue decrease, increase, remain the same, Explain.

The Monopolist produces in the elastic section of its demand curve

because MR = Positive

therefore if it raises its price its total revenue will decrease

(C.) Assume a per-unit subsidy.

(i) Will Steve's quantity increase, decrease or remain the same? Explain.

Per-unit subsidy (or tax) will shift the MC curve as they are like VC (variable costs)

a per-unit subsidy will shift the MC curve to the right

subsidies = more quantity

at the same time the ATC will shift down like the
VC have decrease as the subsidy is given

(ii) Will consumer surplus increase decrease or remain unchanged?

If the MC curve shifts right the Price will decrease and the quantity will increase

therefore the Consumer Surplus must increase as price is lower

(D.) Assume a Lump-Sum, in the short-run.

(i) Will Dead Weight Loss increase, decrease or remain the same? Explain.

Lump Sums are thought of like Fixed Costs

they don't affect the MC curve

therefore no change in quantity or price

If quantity doesn't change then DWL can't decrease or increase

no change in DWL

(ii) Will Steve's losses increase, decrease, or remain unchanged.

Steve will be receiving a subsidy so his losses will decrease.
The Lump-Sum subsidy reduces fixed costs so the ATC shifts down

2011 AP Microeconomics Exam

(A.) Monopolist profit maximizes (single price) (unregulated), indicate the monopolists price.

Price and quantity are found by looking for

Profit Max = MR = MC

Price = 24

Quantity = 8

(B.) When the output is 8 units , what is the profit per unit?

Price = $24

ATC = $18

Profit Per-Unit = $24 - $18 = $6 per unit

(C.) Assume the profit maximizing monopolist. Is Allocative Efficiency achieved? Explain.

Allocative Efficiency is where P = MC

The simplest way to explain the monopolist is not at

allocative efficiency is to say the P > MC

If price is greater than the MC then the monopolist can't be allocatively efficient

(D.) Between the price pf $16 and $18, is the monopolist demand, inelastic, elastic or unit elastic? Explain.

Easiest and fastest way to explain that the monopolist is inelastic between $18 & $16.

(1) MR = Negative

(2) Total Revenue Test

(3) PED formula

(E.) Assume regulators set an output of 11 units.

(i) Is the monopolist earning positive economic profits? Explain.

No,, At 1 units the P = ATC, this is Break-Even, Zero Economic (Normal) Profits

Profits are Zero not Positive

(ii) Is the Monopolist achieving Positive Accounting Profits?

Yes, as when the monopolist is at Break-Even it is covering all

of its explicit and implicit costs

Accountants only look at explicit costs and if explicit and implicit costs are being covered

then we are having positive accounting profits

Example,

Monopolist at Break-Even and is covering its Explicit costs of $3 and Implicit costs of $2

The monopolist is Making $5 and its costs are $5 thus break-even,

The Accountant would have said we are breaking even at $3

the additional money the monopolist makes in covering its implicit costs

pushes the accountant into Positive Profit

(F.) Suppose the regulators impose a price floor at $22.

(i) What is the MR for the 8th unit?

(ii) What Quantity will be produced?

(G.) Assume instead the monopolist perfectly price discriminates,

(i) What will be the quantity produced?

10 units will be produced as that is where the MR = MC
when a firm price discriminates it charges the highest price for each unit sold
therefore the MR becomes the Demand Curve
The shaded in portion shows the Price Discriminating monopolists profits

(ii) What will be the value of the Consumer Surplus = Zero

Price Discriminating monopolists charge the highest prices for each unit

therefore consumer surplus is zero

2010B AP Microeconomics Exam

2009 AP Microeconomics Exam

(A.) Draw a graph showing the following.

(B.) Assume the government grants a lump-sum subsidy of 1million. Will the quantity change? Explain.

Lump-Sum Subsidies do not affect the MC curve of the firm,,

therefore the price and quantity can't change.

Be aware that Lump-Sums are looked at like Fixed Costs (FC)

they don't affect the MC curve but subsidies will shift the ATC

down and therefore the firms profits will increase.

(C.) The Government forces the firm to produce the quantity where its making zero economic profits. Show on the graph at QR

Zero Economic Profits = P = ATC also called a Normal Profit

(D.) Is the accounting profits, positive, negative or zero at QR? Explain.

At QR the firm is making Zero Economic Profit = Normal Profit = P = ATC

This means the Accounting profit is Positive

as implicit costs are covered.

(E.) Assume the study reveals external benefits to watching TV, will the Socially Optimal Quantity be larger, smaller or equal to QS?

If there are external benefits to watching tv we assume more people should be watching TV
therefore the SOQ will be to the right (larger than ) of QS.