Can you answer these AP Microeconomics MC questions?

Test Preparation AP Test Preparation
1

<p>Can anyone explain these to me? They’re from the 2005 AP Micro released exam. Answers are starred *.</p>

<ol>
<li><p>Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run?
*(a) if the average total cost curve is rising, the marginal cost curve is above the average total cost curve.
(b) if the average total cost curve is rising, the marginal cost curve is below the average total cost curve.
(c) if the average total cost curve is rising, the marginal cost curve is rising.
(d) if the average total cost curve is rising, the marginal cost curve is falling.
(e) if the average and marginal cost curves intersect, the marginal cost curve is at a minimum</p></li>
<li><p>The surgeon general has determined that smoking causes cancer and heart disease for both smokers and passive smokers, nonsmokers who breathe smoke-filled air. If cigarette prices are determined in a free market, which of the following will be true?
*(A) The price of cigarettes will be too low and the quantity sold will be too high.
(B) The price of cigarettes will be efficient but the quantity sold will be too high.
(C) The market will be efficient because markets always equate marginal benefits and marginal costs.
(D) The price of cigarettes will reflect the marginal social benefit received by nonsmokers.
(E) The price of cigarettes will overstate the true social cost imposed on nonsmokers.</p></li>
<li><p>Which of the following best explains why the short-run average total cost curve is U-shaped?
(A) Spreading total fixed costs over a larger output, and constant returns
*(B) Spreading total fixed costs over a larger output, and eventually dimishing returns
(C) Increasing total fixed costs and increasing returns
(D) Increasing average variable costs and decreasing returns
(E) Decreasing average variable costs and increasing returns</p></li>
<li><p>A single-price monopolist’s marginal revenue is
(A) equal to its price.
*(B) less than its price.
(C) greater than its price.
(D) negative when it maximizes revenues.
(E) zero when it maximizes profit.</p></li>
<li><p>Which of the following is true if a monopolist’s marginal revenue is negative at the current level of output?
(A) Demand for its product is unit elastic.
(B) Demand for its product is price elastic.
*(C) Demand for its product is price inelastic.
(D) Marginal cost is equal to price.
(E) Marginal revenue is equal to price.</p></li>
<li><p>An industry will produce more than the socially efficient level of output under which of the following conditions?
(A) The production or consumption of a good generates a positive externality.
*(B) The production or consumption of a good generates a negative externality.
(C) The industry is a monopoly.
(D) The industry produces a public good.
(E) The industry produces a private good.</p></li>
</ol>

2

<ol>
<li>MC curve intersects ATC at it’s minimum. This is because when MC is less than ATC, ATC is falling because the next unit cost (MC) will bring ATC down because MC is less than ATC, and when ATC is less than MC, ATC is rising. so A correctly describes this.</li>
</ol>

3

<p>I’d like to know the answer to 55 as well…</p>

<ol>
<li><p>In a free market, firms sell more goods at a lower price than the social optimum; if the gov’t put a tax on cigs, price would increase and quantity would decrease</p></li>
<li><p>It initially decreases since fixed costs are dominating the total costs, and they’re spread over a larger output…but as output increases, variable costs become more dominant, and they increase due to diminishing returns</p></li>
<li><p>To produce 1 more output, a monopolist must lower his price, so his MR is less than the price(since all previous units are sold for a lower price)</p></li>
<li><p>Negative externality means there are social costs not factored in(e.g., pollution). This causes a firm to produce more than would be socially optimal.</p></li>
</ol>

4

<ol>
<li> You simply have to know/memorize this. On a monopolist curve, when MR=0 it is unit elastic, MR>0 elastic and MR<0 inelastic. A monopolist will never sell along the inelastic portion of the line.</li>
</ol>

5

<p>Wait, If MR is negative, that’s because the price increase caused a greater decrease in quantity demanded(thus resulting in a lower P*Q), which would mean that the demand is inelastic???</p>

<p>Also, I’ve seen questions that ask “What if a monopolist wishes to maximise revenue instead of profits?” Why would they ever want to do this?</p>

6

<p>cortana431, garfieldliker, cc123sb - Thank you!</p>

<p>How about this one from the 2000 AP Micro?</p>

<ol>
<li>Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output?
(A) $2
(B) $5
*(C) $7
(D) $9
(E) $12</li>
</ol>

7

<p>At 10 units of output, each worker produces an average of 5 units, so there are 2 workers, which means that their wages are 24. Thus, the ATC is (24+46)/10=7</p>

8

<p>Just kidding, I divided wrong. Thanks anyway garfieldliker. Your explanations are very clear and helpful.</p>