AP Microeconomics Review Part 2

If a firm's long-run average total cost falls as output rises, the firm is experiencing

• economies of scope

• economies of scale

• diseconomies of scale

• increasing marginal returns

• diminishing marginal returns

If supply increases and the demand curve is downward-sloping, which of the following is necessarily true?

• consumer surplus increases

• consumer surplus decreases

• consumer surplus is unaffected

• producer surplus is unaffected

• producer surplus increases

Gary owns a hot dog vending business. Each month he spends $1,000 on fixed capital and $2,000 on buns, hot dogs, and supplies. Gary's monthly total revenue is $3,000. In order to start this business, Izzy had to quit his teaching job, in which she earned $2,500 per month and had no work-related expenses. Gary earns:

• an accounting profit of $5,500

• an accounting profit of $3,000

• a normal profit

• an economic profit of $0

• an economic profit of -$2,500

When marginal revenue is positive and decreasing for a monopolist, what is happening to total revenue?

• It is increasing at an increasing rate

• It is decreasing at the same rate as marginal revenue

• It is decreasing faster than marginal revenue

• It is increasing at a decreasing rate

• It is decreasing slower than marginal revenue

What type of tax would collect $1,000 from a person with a $10,000 income, $2,000 from a person with a $20,000 income, and $4,000 from a person with a $40,000 income?

• a progressive tax

• a proportional tax

• a regressive tax

• an excise tax

• a tax incidence

Which of the following is true of a natural monopoly? If regulators

• split the monopolist into several smaller firms, the average total cost will decrease

• set a price ceiling equal to average total cost, there will be no deadweight loss

• set a price ceiling above the average total cost, the firm will not be able to make a profit

• choose not to set a price ceiling, the firm will be a price-taker and the market will determine the price

• set a price ceiling equal to marginal cost, firms will not be willing to produce in the long run without a subsidy

The efficient use of a common resource is most likely to be achieved by

• subsidizing use of the resource

• taxing use of the resource

• eliminating requirements for tradable licenses for the right to use the the resource

• eliminating private property rights

• making the resource nonexcludable

Which of the following is a result of perfect price discrimination?

• a gain in producer surplus

• a gain in consumer surplus

• less output overall

• marginal revenue less than price

• marginal revenue greater than price

In the long run, a monopolistically competitive firm will earn

• positive or negative economic profit, depending on the situation

• positive economic profit due to barriers to entry

• normal profit

• positive economic profit due to a differentiated product

• positive economic profit due to price discrimination

If a country had perfect income equality, its Lorenz curve would be

• U-shaped

• L-shaped

• V-shaped

• straight

• downward-sloping