Practice Free Response Questions

Slides:



Advertisements
Similar presentations
Top 10 Most Common Errors AP Economics
Advertisements

Part 6 Perfect Competition
Marc Schwartzberg Mr. Gill AP. Micro 14, January 2011
Andrei Shatalov Mr. Gill 2B 18 January  The MR=MC point is located on a graph where the marginal revenue curve intersects with the marginal cost.
1. If the monopolist depicted in the graph produces at the profit-maximizing output, what will be the firm’s economic profit? Explain. 2. Lightly shade.
2005 AP Microeconomics Question 1.
Monopolistic Competition
Equilibrium, Profits, and Adjustment in a Competitive Market Chapter 8 J. F. O’Connor.
Market Structure Wrap-Up Chapter 15, 16, &17. Upcoming Test Unit Test Chapters 15,16 & 17 Block Day- Free Response (90 pts) Block Day – Multiple Choice.
Act. 28 Answers Fig OUTPUT TVC TC MC ATC AVC $0 $ $4
Imperfect Competition Pure Monopoly. Price (Average Revenue) Quantity Demanded (Q) Total Revenue (R) Change in Total Revenue (ΔR) Marginal Revenue (ΔR.
Monopolistic Competition
Monopolistic competition Is Starbuck’s coffee really different from any other?
Managerial Economics & Business Strategy
12 MONOPOLY CHAPTER.
Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets.
 relatively small economies of scale  many firms  product differentiation  close but not perfect substitutes  product characteristics, location, services.
Competitive Markets for Goods and Services
John R. Swinton, Ph.D. Center for Economic Education Georgia College & State University.
Chapter 9 Practice Quiz Monopoly
Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit APE/Honors Economics – Test Study Questions – Micro – Unit 3 3. Which of the following.
Unit 2 Big Test Scoring Guidelines – what I will be looking for – if I do not finish, then go to AP Central and find the questions.
Econ 1900 Laura Lamb Perfect competition 2. Monopolistic competition 3. Oligopoly 4. Pure Monopoly 2.
Slides prepared by Dr. Amy Peng, Ryerson University CHAPTER 7 PERFECT COMPETITION Part Two: Microeconomics of Product Markets.
Perfect Competition Chapter 7
Top 10 Most Common Errors AP Economics Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.
1 Chapter 8 Practice Quiz Tutorial Monopoly ©2004 South-Western.
LIPSEY & CHRYSTAL ECONOMICS 12e
A summary of finding profit
Monopoly Quiz Recap.
Perfect Competition By Kayleigh Verney.
Monopolistic Competition CHAPTER 13A. After studying this chapter you will be able to Define and identify monopolistic competition Explain how output.
PC and Monopoly Graphs *Reference Graphs*.
Models of Competition Part I: Perfect Competition
Review pages Explain what it means to say that the monopolist is a “price maker.” 2. Explain the relationship between output and price for.
1.  exists when a single firm is the sole producer of a product for which there are no close substitutes. 2.
And Unit 3 – Theory of the Firm. 1. single seller in the market. 2. a price searcher -- ability to set price 3. significant barriers to entry 4. possibility.
Chapter 14 Questions and Answers.
Monopoly.
Review 1.Identify the 4 market structures. 2.Identify the 3 types of market. 3.Identify 4 types of monopoly. 4.Explain why D is greater than MR in monopoly.
© 2007 Thomson South-Western. Monopolistic Competition Characteristics: –Many sellers –Product differentiation –Free entry and exit –In the long run,
14 Perfect Competition.
Pure Competition Chapter 8.
AP Microeconomics 2004 Question 3.
Monopolistic Competition
SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGE
ECON111 Tutorial 10 Week 12.
Mircoeconomics 2006 Question 1.
Monopoly versus Perfect Competition
P MC P D MR Q Q 2. (a) Draw a correctly labeled graph showing - ATC
#1 MC MR=D=AR= P ATC AVC Q $ Should the firm produce?
Module 67: Introduction to Monopolisitic Competition
Main Topics for Free Responses Since 1995
23 Pure Competition.
Unit 3: Costs of Production and Perfect Competition
AP Microeconomics 2004 Question 3.
© 2007 Thomson South-Western
Mod 60: LONG-RUN OUTCOMES IN PERFECT COMPETITION
8/9b - ARE BUSINESSES EFFICIENT? Pure Competition in the Long Run
Chapter 9 Pure Competition McGraw-Hill/Irwin
Monopolistic Competition
LIPSEY & CHRYSTAL ECONOMICS 12e
Unit 4: Imperfect Competition
Monopoly (Part 2) Chapter 21.
21 Pure Competition.
Pure Competition Chapter 9.
Unit 4 Problem Set Rubric
AP Microeconomics 2004 Question 3.
10 C H A P T E R Pure Competition.
21 Pure Competition.
Presentation transcript:

Practice Free Response Questions Microeconomics Practice Free Response Questions

1) Assume that a profit-maximizing firm in a monopolistically competitive industry is in long-run equilibrium. Draw a correctly labeled graph that shows the profit-maximizing firm’s price and output. Difference between a competitive output, price & profit MC ATC D MR Qty P Q1 P1 A B ------------ B

i. Output ii. Profit iii. Modify Graph The city eliminates the business license fee (a fixed cost) for all firms in this industry. How does the elimination of the license fee affect: i. Output ii. Profit iii. Modify Graph i) Output/Price does NOT change WHY: a ∆ in fixed costs does not ∆ marginal costs or marginal revenue.

i. Output ii. Profit iii. Modify Graph (c) continued i. Output ii. Profit iii. Modify Graph ii) As fixed costs ↓ ATC Shifts downward => profits ↑ (from zero to shaded Area) c) In long run this would attract more competition -Demand would shift left -Profit would = ZERO -Quantity would fall P MC ATC P A Economic Profits ATC1 D Q Q MR

Demand Curve & Elasticity Unit Elastic Elastic range D MR Inelastic Range ● ----------------- Firms Operate in Elastic Portion of Demand Elasticity = 1 when MR = 0

Practice Free Response Question #2 Watsonia

There is one art museum on the island of Watsonia. The PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue There is one art museum on the island of Watsonia. The museum’s demand and cost curves are shown in the graph above. The museum currently relies on an admission charge for some of its funding. Its directors are debating about how to set the admission charge.

P5 Q2 a) Identify the price and quantity associated: PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue a) Identify the price and quantity associated: i) The museum maximizes its profit. P5 Q2

P3 Q4 ii) The museum maximizes its total revenue Marginal Cost PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue ii) The museum maximizes its total revenue P3 Q4

P4 Q3 The museum maximizes the sum of consumer and PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue The museum maximizes the sum of consumer and producer surplus (total welfare) P4 Q3

P2 Q5 iv) The museum maximizes its attendance, as long as PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue iv) The museum maximizes its attendance, as long as it breaks even. P2 Q5

MR is greater than zero; Q1 is left of the mid-point PRICE/COST Elastic Marginal Cost P6 P5 Average Total Cost P4 P3 P2 Inelastic P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue When the attendance is Q1, is the demand price elastic, inelastic, or unit elastic? Explain. Demand is elastic at Q1. MR is greater than zero; Q1 is left of the mid-point or in the upper half of the demand.

Accounting profits are positive. PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the price is set at P2. Assuming the existence of an opportunity cost, indicate whether the museum’s accounting profits would be positive, negative, or zero. Explain why. Accounting profits are positive.

Economic profit is zero and opportunity costs exist. PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the price is set at P2. Assuming the existence of an opportunity cost, indicate whether the museum’s accounting profits would be positive, negative, or zero. Explain why. Economic profit is zero and opportunity costs exist.

Economic profit is zero and ATC includes opportunity costs. PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the price is set at P2. Assuming the existence of an opportunity cost, indicate whether the museum’s accounting profits would be positive, negative, or zero. Explain why. Or-- Economic profit is zero and ATC includes opportunity costs.

Q7 Assume that the government decides the museum should PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the government decides the museum should charge no admission and agrees to subsidize the museum for any losses. Using the labeling in the graph, identify the museum’s attendance under that circumstance. Q7

Innovation in Schools http://www.youtube.com/watch?v=azNo8ttSCiY

Outcome is NOT allocatively efficient. PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the government decides the museum should charge no admission and agrees to subsidize the museum for any losses. ii) Would the outcome be allocatively efficient? Explain. Outcome is NOT allocatively efficient.

MC > P or MSC > MSB is greater than PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 is greater than P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the government decides the museum should charge no admission and agrees to subsidize the museum for any losses. ii) Would the outcome be allocatively efficient? Explain. MC > P or MSC > MSB