2021 (Set 2) AP Micro FRQ#3 (Utility/ MC=MB)

 2021 (Set 2) AP Micro FRQ#3 (Utility/ MC=MB)

Watch me answer it here

https://youtu.be/ELrUrIilKQM

a) Calculate the total net benefit of placing three advertisments.

Net = Benefits - Costs

Total Benefit of 3 advertisements = $3,000

Total Cost of 3 advertisements = $800

Total NET Benefit = Total Benefit - Total Cost = Total Net Benefit

$3,000 - $800 = $2,200

b) Calculate the marginal net benefit of the third advertisement.

Marginal = Change in Total / Change in Quantity

c) What is the optimal number of advertisements? Explain using marginal analysis.

The Optimal number of advertisements is where the MC = MB

If we can't get there then we want to get as close as possible to the MC = MB 

without having the MC > MB.

The 4th advertisement has a MC of 500 and a MB of 600 = a 100 difference which is as close to where the MC=MB without having the MC > MB.

the 5th advertisement the MC > MB and we would never want to buy advertisements where the MC is greater than the MB as we would be losing money on that advertisement.

d) Suppose over the next year the MB for each advertisement increases by $300. Identify the optimal number of advertisements.

The MB for the 4th unit is now 900and the MC for the 4th unit is still 500 a 400 difference.

The 5th units MC is now greater than its MB and we never want our MC to be greater than the MB or we will be loosing money on that Unit.

So we stay at the 4th unit.

e) There are many firms and they advertise.

We only have one market structure that advertises for the AP.

Monopolistic Competition

Natural Monopoly Cheat Sheet

Here

ALL Monopolistic Competition FRQ's

ALL Monopolistic Competition FRQ's

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Monopolistic Competition (Cheat Sheet) Updated 4/16/2018

Monopolistic Competition (Cheat Sheet) Updated 4/16/2018

Advertising
to reduce
Demand Elasticity

2009 B Microeconomics FRQ #1

2009 B Microeconomics FRQ #1

Watch me anser it here

https://youtu.be/yadprxzZMXo

(A) Draw a CLG for Mary & Company and show each of the following.

(i) The profit max output and price, labelled as Qm & Pm respectively.

(ii) The area of loss shaded completely.

(B) What must be true in the short run for the company to continue at a loss?

Memorise this phrase, " In order for a company to continue operation at a loss it must be covering its variable costs (labor). You will see this again.

(C) Assume now that the demand for cleaning products increases and that the company is not earning short-run economic profits. relative to this short-run situation, how does each of the following change in the long-run.

(i) The number of firms.

Increase - In the long-run more firms will enter the market as profits attract firms.

(ii) The company's profit.

Decrease - In the long run the firm will be in long-run equilibrium making zero economic profit.

(D) In the long-run if the company continues to produce, will it produce the allocatively efficient level of output? Explain.

Remember that the industry is a monopolistically competitive industry, 

In the long-run the allocatively efficient level of output will not be produced. 

Monopolistic Competition Cheat Sheet is here.

(E) In  the long-run will the company be operating in the region where 

economies of scales (EOS) exist.

Absolutely - 

First, You must know what economies of scales looks like. Economies of Scale is the left half of the LRATC curve. It means that even though quantity in the industry is increasing costs for those resources are falling. 

EOS post is here.

Now, look closely at the graph you were to have drawn and notice 

Even when the firm is in long-run equilibrium it will still be operating in the downward sloping section of the ATC and therefore in the EOS region.