2024 AP Microeconomics Free-Response Questions
Advanced PlacementEconomicsFree Response
3 questions20 pts
3 gradable20 rubric criteria0 dependencies
q1
Question 1
1. Soja Farm is a typical profit-maximizing firm that produces and sells soybeans in a constant-cost, perfectly competitive market that is in long-run equilibrium. The market equilibrium price of soybeans is $14 per bushel. (a) Draw correctly labeled side-by-side graphs for the soybean market and for Soja Farm, and show each of the following. (i) The market equilibrium price and quantity, labeled $14 and Q_M, respectively (ii) Soja Farm's profit-maximizing price and quantity, labeled P_F and Q_F, respectively (iii) Soja Farm's average total cost curve consistent with a long-run equilibrium, labeled ATC (b) If Soja Farm is the only firm in the market that chooses to increase its price of soybeans to $15 per bushel, will Soja Farm's total revenue increase by $1, remain the same, or decrease to $0 ? Explain. (c) Soybeans are used as an input in the production of tofu. Tofu now becomes a more popular food option among consumers. On your graphs in part (a), show the short-run effect of the increased popularity of tofu on each of the following. (i) The new market equilibrium price and quantity of soybeans, labeled P_2 and Q_2, respectively (ii) Soja Farm's new profit-maximizing quantity, labeled Q* (d) Given the increase in popularity of tofu in part (c), what will happen to the number of firms in the soybean market in the long run? Explain. (e) Suppose a 25% increase in the market price of quinoa causes a 5% decrease in the quantity demanded of quinoa and a 10% increase in the quantity demanded for tofu. (i) Is the demand for quinoa elastic, inelastic, or unit elastic? Explain using numbers. (ii) Calculate the cross-price elasticity of demand between quinoa and tofu. Show your work. Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.
Rubric Criteria (10)
C1The response includes a correctly labeled graph of the market for soybeans showing a downward-sloping demand curve labeled D1 and an upward-sloping supply curve labeled S, with the market equilibrium price labeled as $14 and the market equilibrium quantity labeled as QM.
1.0000pts
C2The response includes a correctly labeled graph of Soja Farm showing the firm’s horizontal demand and marginal revenue curve labeled d1=MR1, extended from the market equilibrium price, with the firm’s price labeled as PF.
1.0000pts
C3The firm’s graph shows a rising marginal cost (MC) curve and shows the profit-maximizing quantity labeled QF where MR equals MC.
1.0000pts
C4The firm’s graph shows the average total cost (ATC) curve tangent to the firm’s demand curve at QF and shows the MC curve passing through the minimum point of the ATC curve.
1.0000pts
C5The response states that Soja Farm’s total revenues would decrease to $0 and explains that all consumers of soybeans would buy soybeans from other sellers who charge the market price of $14.
1.0000pts
C6The market graph from part (a) shows a rightward shift of the market demand curve with the new equilibrium price labeled P2 and the new equilibrium quantity labeled Q2.
1.0000pts
C7The firm’s graph from part (a) shows an upward shift in the firm’s marginal revenue (demand) curve at price P2 and shows the new profit-maximizing quantity for Soja Farm labeled Q*.
1.0000pts
C8The response states that the number of firms will increase in the long run and explains that the positive economic profits earned by soybean producers will encourage new firms to enter the market.
1.0000pts
C9The response states that the demand for quinoa is inelastic and explains this with one of the following: the absolute value of the price elasticity of demand for quinoa is 0.2; or the 5% decrease in the quantity demanded of quinoa is less than the 25% increase in the price of quinoa.
1.0000pts
C10The response calculates the cross-price elasticity of demand as 0.4 and shows the work: the percentage change in quantity demanded of Tofu (10%) divided by the percentage change in price of Quinoa (25%).
1.0000pts
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q2
Question 2
2. Good X is produced and sold in a perfectly competitive market. The provided graph shows the market for Good X. [Graph: Price ($) on the vertical axis and Quantity on the horizontal axis. Curves shown: an upward-sloping Marginal Social Cost = Marginal Private Cost curve; a downward-sloping Marginal Social Benefit curve; and a downward-sloping Marginal Private Benefit curve below Marginal Social Benefit. Key visible coordinates with dashed guidelines: Marginal Social Cost = Marginal Private Cost intersects Marginal Social Benefit at quantity 300 and price 20; Marginal Social Cost = Marginal Private Cost intersects Marginal Private Benefit at quantity 400 and price 10; on the Marginal Social Benefit curve, quantity 200 corresponds to price 25. The price axis is marked at 10, 15, 20, and 25. The quantity axis is marked at 0, 200, 300, 400, 500, and 600.] (a) Identify the market equilibrium price and quantity. (b) Calculate the deadweight loss at the market equilibrium. Show your work. (c) Suppose the government wants to eliminate the deadweight loss in the market for Good X. (i) Which of the following will achieve the government's objective: a per-unit tax on consumers or a per-unit subsidy to consumers? Explain. (ii) What is the dollar value of the per-unit tax or per-unit subsidy identified in part (c)(i)? (d) Suppose instead the government imposes a price ceiling of $10. Will the price ceiling achieve the socially optimal quantity of Good X? Explain.
Rubric Criteria (5)
C1The response states that the market equilibrium price is $15 and the market equilibrium quantity is 300 units.
1.0000pts
C2The response calculates the deadweight loss as $500 and shows the work: 1/2 × ($25 − $15) × (400 − 300) = $500.
1.0000pts
C3The response states that the government will grant a per-unit subsidy to consumers to achieve the socially optimal quantity of 400 units and explains this with one of the following: a per-unit subsidy to consumers that internalizes external benefits increases the incentive and ability of consumers to buy the socially optimal quantity (400); a per-unit subsidy to consumers equal to the marginal external benefit increases consumption to the socially optimal quantity (400) by lowering the price paid by the consumer; or a per-unit subsidy to consumers equal to the difference between marginal social benefit and marginal private benefit increases the quantity exchanged to the socially optimal quantity (400).
1.0000pts
C4The response states that the dollar value of the per-unit subsidy is $10.
1.0000pts
C5The response states no, the price ceiling will not achieve the socially optimal quantity of Good X and explains that the price ceiling will cause the quantity exchanged in the market, which is limited by the quantity supplied (200), to be less than the socially optimal quantity (400).
1.0000pts
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q3
Question 3
Field Cruiser Reliability Power Nice Ride Safety $10 million, $28 million $32 million, $35 million Comfort $30 million, $40 million $25 million, $20 million 3. Nice Ride and Field Cruiser are the only two producers of vehicles. Nice Ride is deciding whether to improve Safety or Comfort. Field Cruiser is deciding whether to improve Reliability or Power. The payoff matrix shows the payoffs for each combination of strategies. The first entry in each cell shows Nice Ride's profit, and the second entry shows Field Cruiser's profit. Each firm independently and simultaneously chooses its strategy. Assume the two firms know all the information in the matrix and do not cooperate. (a) What is Field Cruiser's most profitable strategy if Nice Ride chooses to improve Safety? (b) Does Nice Ride have a dominant strategy? Explain using numbers from the payoff matrix. (c) Is Nice Ride choosing to improve Safety and Field Cruiser choosing to improve Power a Nash equilibrium? Explain using numbers from the payoff matrix. (d) Suppose Nice Ride and Field Cruiser decide to merge to maximize combined profits and choose to keep producing both Nice Ride and Field Cruiser vehicles. Assuming the values in the payoff matrix do not change, what would be the new firm's total profit? (e) Suppose instead that a change in fuel prices reduces the profitability of choosing to improve Power by $10 million for Field Cruiser. Identify each firm's profit at the Nash equilibrium. Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.
Rubric Criteria (5)
C1The response states that Field Cruiser’s most profitable strategy is to improve Power.
1.0000pts
C2The response states that Nice Ride does not have a dominant strategy and explains that if Field Cruiser chooses Reliability, then Nice Ride will choose Comfort since $30 million is greater than $10 million, and if Field Cruiser chooses Power, then Nice Ride will choose Safety since $32 million is greater than $25 million.
1.0000pts
C3The response states yes, the combination of strategies is a Nash Equilibrium and explains that if Field Cruiser unilaterally chooses Reliability, its profits will decrease from $35 million to $28 million, and if Nice Ride unilaterally chooses Comfort, its profits will decrease from $32 million to $25 million.
1.0000pts
C4The response states that the new firm’s total profit will be $70 million.
1.0000pts
C5The response states that Nice Ride’s profit will be $30 million and Field Cruiser’s profit will be $40 million at the Nash equilibrium.
1.0000pts
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