2025 AP Microeconomics Free-Response Questions

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.