2025 AP Microeconomics Free-Response Questions
Advanced PlacementEconomicsFree Response
3 questions20 pts
3 gradable20 rubric criteria0 dependencies
q1
Question 1
1. Voda Reservoir is a profit-maximizing firm and the only producer of bottled water in a country. Currently, Voda Reservoir is earning negative economic profit. A. Draw a correctly labeled graph for Voda Reservoir and show each of the following. i. The profit-maximizing quantity, labeled QM ii. The profit-maximizing price, labeled PM iii. The average total cost curve consistent with Voda Reservoir earning negative economic profit, labeled ATC iv. The area of deadweight loss, shaded completely B. Suppose the government requires Voda Reservoir to produce the socially optimal quantity of bottled water. On your graph in part A, show the socially optimal quantity of bottled water, labeled QS. C. Suppose instead the government grants a per-unit subsidy to Voda Reservoir. What will happen to Voda Reservoir's profit-maximizing quantity of bottled water? Explain. D. Suppose new producers have entered the bottled-water market and Voda Reservoir continues to operate in the bottled-water market. Will the demand for Voda Reservoir's bottled water become more elastic, become less elastic, or stay the same as new producers enter the market? E. Voda Reservoir hires workers in a perfectly competitive labor market. i. If the demand for bottled water increases, what will happen to Voda Reservoir's demand for labor? Explain. ii. The government implements a new regulation that increases the minimum age required for a worker to be employed in a bottled-water factory. What will happen to the market wage in the short run? Explain.
Rubric Criteria (10)
Point_1Draw a correctly labeled graph for Voda Reservoir with a downward-sloping demand (D) curve and a downward-sloping marginal revenue (MR) curve with the MR curve below the D curve.
1.0000pts
Point_2The graph must show a rising marginal cost (MC) curve and the profit-maximizing quantity, labeled QM, where MR = MC.
1.0000pts
Point_3The graph must show the profit-maximizing price, labeled PM, from the D curve at QM.
1.0000pts
Point_4The graph must show the average total cost (ATC) curve above the D curve and show the MC curve passing through the minimum point of the ATC curve.
1.0000pts
Point_5The graph must show the area of deadweight loss, shaded completely.
1.0000pts
Point_6The graph from part A must show the socially optimal quantity of bottled water, labeled QS, from the intersection of the D and MC curves.
1.0000pts
Point_7State that Voda Reservoir’s profit-maximizing quantity of bottled water will increase and explain with ONE of the following: the per-unit subsidy decreases the firm’s marginal cost, which shifts the MC curve to the right (down), intersecting the MR curve at a greater quantity; OR the per-unit subsidy increases the firm’s marginal revenue, which shifts the MR curve to the right, intersecting the MC curve at a greater quantity.
1.0000pts
Point_8State that the demand for Voda Reservoir’s bottled water will become more elastic.
1.0000pts
Point_9State that Voda Reservoir’s demand for labor will increase and explain that the increase in demand for bottled water will increase the price and marginal revenue of bottled water, increasing the marginal revenue product of labor.
1.0000pts
Point_10State that the market wage will increase in the short run and explain that the new regulation will decrease the supply of workers.
1.0000pts
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q2
Question 2
2. The graph provided shows the market for rice in the country of Rushland. [Visible graph: Vertical axis labeled "Price per Bushel ($)" with values marked from 0 to 12. Horizontal axis labeled "Quantity" with values marked from 0 to 120. The downward-sloping Demand curve runs from the price-axis intercept at $10 (quantity 0) to the quantity-axis intercept at 100 (price $0) and passes through the equilibrium point where price is $4 and quantity is 60. The upward-sloping Supply curve starts at price $1 (quantity 0), passes through the equilibrium point ($4, 60), and continues to price $7 at quantity 120. The curve is labeled Supply.] A. Calculate the total economic surplus at market equilibrium. Show your work. B. If the government sets a price floor at $3 per bushel, will there be a surplus, a shortage, or neither? Explain. C. Suppose that instead of the price floor, Rushland engages in international trade and the world price of rice is $5 per bushel. i. Will Rushland export or import rice? Explain using numbers from the graph. ii. Calculate the domestic consumer surplus when Rushland engages in international trade. Show your work. iii. Calculate the total revenue that Rushland's farmers will earn at the world price. Show your work.
Rubric Criteria (5)
ACalculate the total economic surplus as $270 and show your work, using a correct method such as ½ × ($10 − $1) × (60 − 0) = $270 or the sum of consumer surplus and producer surplus yielding $270.
1.0000pts
BState that there will be neither a surplus nor a shortage and explain that a price floor set below the equilibrium price is not binding and, therefore, will have no effect on the market price and quantity.
1.0000pts
Point_2State that Rushland will export rice and explain with ONE of the following: at the world price of $5, the domestic quantity supplied is 80 bushels of rice, which is greater than the domestic quantity demanded, which is 50 bushels of rice; OR at the world price of $5, Rushland has a domestic surplus of 30 bushels of rice that can be exported.
1.0000pts
iiCalculate the domestic consumer surplus in Rushland as $125 and show your work, using a correct method such as ½ × ($10 − $5) × (50 − 0) = $125.
1.0000pts
iiiCalculate the total revenue Rushland's farmers will earn as $400 and show your work, using a correct method such as $5 × 80 = $400.
1.0000pts
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q3
Question 3
3. Tony's Trinkets and Bitaly's Bracelets are the only two firms in a town that produce and sell jewelry. Tony's Trinkets is deciding whether to produce Unique jewelry or Typical jewelry. Bitaly's Bracelets is deciding whether to produce Gold jewelry or Silver jewelry. The payoff matrix shows the payoffs for each combination of strategies. The first entry in each cell shows Tony's Trinkets' profit, and the second entry shows Bitaly's Bracelets' profit. Each firm independently and simultaneously chooses its strategy. Assume that the two firms know all the information in the matrix and do not cooperate. Bitaly's Bracelets Gold Silver Tony's Trinkets Unique $15, $21 $20, $19 Tony's Trinkets Typical $10, $7 $21, $16 A. Suppose Bitaly's Bracelets chooses to produce Silver jewelry. Is choosing to produce Unique jewelry the best choice for Tony's Trinkets? Explain using numbers from the payoff matrix. B. Is Bitaly's Bracelets' dominant strategy to produce Gold jewelry, to produce Silver jewelry, or does it not have a dominant strategy? Explain using numbers from the payoff matrix. C. Identify all Nash equilibria for this game. D. Suppose Tony's Trinkets' profit from producing Typical jewelry increases regardless of what Bitaly's Bracelets does. What is the minimum amount by which Tony's Trinkets' profit must increase in order for Typical jewelry to become a dominant strategy: $2, $4, $6, $11, or $15? E. Suppose instead that these two firms now cooperate and merge into one firm to maximize their combined profits. The new firm will have two locations and continue to face the same actions and payoffs. Calculate the new firm's maximum combined profit. Show your work. STOP END OF EXAM
Rubric Criteria (5)
Point_1State “No,” producing Unique jewelry is not the best choice for Tony's Trinkets if Bitaly's Bracelets chooses to produce Silver jewelry, and explain that Tony's Trinkets' profit from producing Typical jewelry is $21, which is greater than its profit when producing Unique jewelry, which is $20.
1.0000pts
Point_2State that Bitaly's Bracelets does not have a dominant strategy and explain that when Tony's Trinkets chooses Unique, Bitaly's Bracelets' profit is higher when it chooses Gold ($21 > $19), and when Tony's Trinkets chooses Typical, Bitaly's Bracelets' profit is higher when it chooses Silver ($16 > $7).
1.0000pts
Point_3Identify the two Nash equilibria for the game as Tony's Trinkets chooses Unique and Bitaly's Bracelets chooses Gold, and Tony's Trinkets chooses Typical and Bitaly's Bracelets chooses Silver.
1.0000pts
Point_4State that the minimum amount is $6.
1.0000pts
Point_5Calculate the new firm's maximum combined profit as $39 and show your work, such as $20 + $19 = $39.
1.0000pts
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