AP Microeconomics Final Exam

The graph above depicts cost and revenue curves for a typical firm in a monopolistically competitive industry. Suppose that the firm is producing 0M units of output. To maximize profits, it should do which of the following to output and price?

• O: Increase,

  I: Decrease

• O: Increase,

  I: Increase

• O: Decrease,

  I: Increase

• O: Not change,

  I: Increase

• O: Not change,

  I: Not change

Which of the following statements about the firm whose cost and revenue curves are shown above is correct?

• Its profit-maximizing price is $5.

• Its profit-maximizing output level is 200 units.

• Its maximum profit is $4,000.

• If it produces 250 units, it will earn no economic profits.

• At the profit-maximizing level of output, its total cost is $1,000.

The profit-maximizing firm depicted in the graph above should

• exit if conditions do not improve in the long run

• produce the output that minimizes average total cost

• increase price to maximize profits

• increase output to maximize profits

• use less capital and more labor to reduce cost

The graph above shows a firm's cost and revenue curves. This profit-maximizing firm will

• produce where demand is inelastic

• charge a higher price than that necessary to maximize revenues

• have many profit-maximizing price and quantity combinations

• be unable to increase sales and total revenues by lowering its price

• never have a region of falling average total cost

The graph above shows the marginal revenue product curve and supply curve of labor for a firm. The introduction of new management techniques dramatically increases workers productivity. Which of the following changes is most likely to occur?

• The supply curve will shift to the left, increasing the wage rate.

• The supply curve will shift to the right, increasing employment.

• The marginal revenue product curve will shift to the right, increasing wage rate.

• The marginal revenue product curve will shift to the left, reducing employment.

• Neither the marginal revenue product curve nor the supply curve will shift, but the wage will increase and employment will fall.

The firm shown in the diagram qualifies as a natural monopoly because

• the demand curve is downward sloping

• the demand curve lies above the marginal revenue curve

• the average total cost is decreasing in the relevant range of market demand

• the firm can maximize profit with any output level it chooses

• marginal revenue is positive at the profit-maximizing output level

The firm’s profit-maximizing output in the short run is

• zero, because

• , because

• , because

• , because

• impossible to determine

Which of the following will the firm do in the long run if market conditions do not change?

• It will increase output to and lower price to minimize losses.

• It will increase output to and raise price to earn zero economic profit.

• It will produce and set price equal to marginal revenue.

• It will exit the industry.

• It will build a larger plant to achieve decreasing returns to scale.

If a binding minimum wage increases in a perfectly competitive labor market, then which of the following will likely occur in the labor market?

• The supply of workers will increase.

• The supply of workers will decrease.

• The demand for workers will increase.

• The demand for workers will decrease.

• The quantity of workers supplied will increase.

Suppose the market for health-care workers is perfectly competitive. Which of the following will happen in the market for health-care workers in the short run if the demand for health care increases?

• The supply curve of health-care workers will shift to the right.

• The supply curve of health-care workers will shift to the left.

• The demand curve for health-care workers will shift to the right.

• The demand curve for health-care workers will shift to the left.

• Neither the demand curve nor the supply curve of health-care workers will shift.