AP Microeconomics FRQ discussions/answers!

<p>Here are the questions in case you guys forgot them: <a href="http://apcentral.collegeboard.com/apc/public/repository/ap10_frq_microecon.pdf%5B/url%5D"&gt;http://apcentral.collegeboard.com/apc/public/repository/ap10_frq_microecon.pdf&lt;/a&gt;&lt;/p>

<p>1) a) For Farmer Roy, I had a horizontal demand/MR curve and your standard MC curve along with the ATC curve intersecting the intersection between MC and MR (QF1) at its minimum (to signify the productive efficiency of the PC firm as well as the fact that it is earning zero economic profit). The market graph is your simple supply/demand graph and then the intersection of supply/demand is where you derive Pm1 and Qm1 (make sure that Pm1 = where the MR/D curve for Farmer Roy is)</p>

<p>b) Perfectly elastic since he is a price taker and has no market power.</p>

<p>c) Demand curve for the market shifts to the right because there is an increased demand for corn and the demand curve for Farmer Roy shifts upward to the corresponding market equilibrium price, thus making him produce more. The price at this quantity (Qf2) is greater than the ATC and Farmer Roy is making an economic profit (lol I put something about the slopes of each and how the MC has a greater slope than the ATC curve past its minimum so when MR increases/shifts upward, the intersection between MC and MR corresponds to a greater price than that corresponding to the new position on the ATC curve - they won't take off for that right :().</p>

<p>d) Since demand shifts to the right and the market price increases for corn, the production costs for making cereal increase and thus supply shifts to the left and the new equilibrium quantity is lower and the market price is higher.</p>

<p>2) a) The supply curve (MFC) is horizontal and the demand curve is downward sloping for the individual firm and the graph is like your standard supply/demand graph for the market as a whole and then just label the corresponding quantities and prices from there.</p>

<p>b) I put that the marginal product decreases but I think I'm wrong and the marginal product curve doesn't shift whatsoever. The MRP curve shifts to the left due to something about the price, but I put that since the demand for the machines is derived from the market demand and since MRP=D, a decrease/shift in the market demand curve will cause a shift in the derived demand curve for the machines and thus a decrease in the MRP.</p>

<p>c) It's $30. You just do ratios. 28/14=60/X, X=$30/hour</p>

<p>3) a) Consumer Surplus = JP3M, Producer Surplus = P1P3M</p>

<p>b) Q1</p>

<p>c) Consumer Surplus = JKP5 and deadweight loss = MKR</p>

<p>Comment and correct as you please.</p>

<p>Wow, I'm surprised. I think I actually got most of these, though I labeled MC and ATC wrong on the first graph rofl...and I probably missed 2B. That's pretty good for...absolutely no studying haha. I guess I'll have to see what happens on MC now to see if it's a 2, 3, or 4....</p>

<p>i think i missed a point cuzx i put Rent instead of (Rental Rate) for the Widget one ugh.
and then the P ATC one i think i didnt explain it clearly so at most 2 points missed?</p>

<p>And MP curve stays the same (not affected by price)</p>

<p>2b) MP doesn't change as the machines don't become more/less productive.
MRP does shift left, however.</p>

<p>MP curve stays the same.</p>

<p>MRP curve shifts left/down because MRP = MP x P(of widgets). Since the price of widgets decreases, MRP decreases as well.</p>

<p>Everything else looks right. Congrats on your 5!</p>

<p>Familyguy, your explanation doesn't matter for that one since it doesn't ask for an explanation. As long as you put P>ATC you are fine.</p>

<p>omg YES. lol then i think the only point i missed was putting Rent instead of Rental Rate vs Capital</p>

<p>If you put MR instead of MRP (fail, I know) is the entire thing wrong or do you just lose a point? Same graph either way, right?</p>

<p>motion 1234,</p>

<p>I do not think that your Micro #3 C ii answer is correct. If the Tax eliminates (internalizes) the negative externality and achieves a socially optimal equilibrium the economy has no deadweight loss @ P-5, Q-1.</p>

<p>Dead Weight loss is a loss to society with no corresponding gain. The tax simply internalized the negative externality for the producer and resulted in MSB=MSC (MPC+Tax).</p>

<p>Sophos, he's right.</p>

<p>The deadweight loss is RMK because it's a portion of money that belongs to no one.</p>

<p>Sagert, thanks for the reply, but I do not understand your reasoning.</p>

<p>If P-5, Q-5 were the result of moving an economiy out of equilibrium through the same tax described in FRQ #3 or an effective price ceiling than the area of DWL would be KMR.</p>

<p>This was a new sort of question where a market failure was addressed through government intervention rather than the more common government intervention causes social inefficiency/market failure.</p>

<p>Deadweight loss is the loss to society created by an inefficiency i.e. MSB Not= MSC.</p>

<p>No deadweight loss can occur @ a position defined as socially efficient as a matter of definition.</p>

<p>Maybe I just am not familiar with the "portion of money" framework.</p>

<p>Deadweight loss occurs anytime MC does not equal MR (Price in this case).</p>

<p>Wow, it sounds like I got a lot more right than I thought I did. I missed a few, and some were small mistakes, but it looks like I did ok. I was totally unsure about 2c, and it was one that I was worried about. However, I did the same ratio thing you did and got the same answer. Maybe I'll pass this one after all :)</p>

<p>CanadaBoy,</p>

<p>MC = MR is the profit max/loss min output decision rule and not a resolution for socially efficient outputs. Most previous Micro FRQs use a profit maximizing monopolist producing at MC = MR to set up deadweight loss questions.</p>

<p>Here is something I just turned up that discusses the scenario from question 3:</p>

<p>Correction</a> of market failure arising from externalities, deadweight loss, market and non-market </p>

<p>(it has a free download version with graphs)</p>

<p>I do not know the source, but is seems pretty solid to me (by that I mean it supports my views ;-)</p>

<p>So the consumer surplus is JKP5?</p>

<p>^Yes, after the tax that is the CS.</p>

<p>for #3, i dont understand what it meant by "negative extendability equal to (p5-p2)" can someone explain?</p>

<p>I think Sophos may be right. If he is, then SO many people are going to have missed that question haha.</p>

<p>How stupid I was....123#@$!@#!@$%!#$@#$</p>

<p>
[Quote]
CanadaBoy,</p>

<p>MC = MR is the profit max/loss min output decision rule and not a resolution for socially efficient outputs. Most previous Micro FRQs use a profit maximizing monopolist producing at MC = MR to set up deadweight loss questions.</p>

<p>Here is something I just turned up that discusses the scenario from question 3:</p>

<p>Correction of market failure arising from externalities, deadweight loss, market and non-market</p>

<p>(it has a free download version with graphs)</p>

<p>I do not know the source, but is seems pretty solid to me (by that I mean it supports my views ;-)

[/Quote]

Deadweight loss isn't derived from an artificial price/quantity of goods in terms of a socially-optimal level; rather, it is defined as the net loss resulting from actions which alter the quantity of a good from a natural competitive market equilibrium (such as taxes, tariffs, market imperfections etc.). Seeing as the consumers, to whom MSC/MSB apply, aren't the suppliers of the good, they have no say in where the supply curve should be in a competitive market. Thus the natural equilibrium is correctly defined as where MSB intersects MPC and the deadweight loss which results from a government imposed tax is the area KMR.</p>