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Practice Test 11 - AP Microeconomics

20 questions. Answer them in any order, then submit to see your score and every explanation.

  1. Based on the monopsonistic labor market shown in the table below (a single logging company is the only employer of equipment operators in the region), how many workers does the monopsonist hire and at what wage? Assume the company hires where MRP=MFCMRP = MFC and pays the wage on the labor supply curve at that employment level. Table: Labor Supply to the Firm and Marginal Factor Cost
    Operators hired (L)Wage ($/hour)MFC ($/hour)
    11818
    21920
    32022
    42124
    52226
    62328
    The company's marginal revenue product (MRP) schedule is: MRP(1)=30MRP(1)=30, MRP(2)=28MRP(2)=28, MRP(3)=26MRP(3)=26, MRP(4)=24MRP(4)=24, MRP(5)=22MRP(5)=22, MRP(6)=20MRP(6)=20.
  2. Based on the market outcome shown in the table, which region represents deadweight loss if the market produces Q=5Q=5 units but the socially efficient quantity is where MB=MCMB=MC? Deadweight loss is the net loss from producing units for which MC>MBMC>MB. Table: Marginal Benefit and Marginal Cost by Unit Units (Q): 1 2 3 4 5 MB ($): 9 7 5 3 1 MC ($): 1 3 5 7 9
  3. A local market for haircuts has dozens of salons. Each salon offers slightly different services and ambience, and each can raise price somewhat without losing all customers. New salons can enter, but they must pay for licensing, equipment, and advertising to attract clients. Based on the market characteristics described, which market structure best fits this description?
  4. A private company operates a subscription-based video streaming service. Only paying subscribers can access the content, and one person watching a movie does not meaningfully reduce the ability of other subscribers to watch at the same time. Based on the characteristics described, which type of good is this?
  5. Based on the firm's cost and price information, should the firm exit the market in the long run? Assume the firm is a price taker in a perfectly competitive market and is currently producing the profit-maximizing quantity where P=MCP=MC. At the profit-maximizing quantity: market price P=P= 2525 dollars per unit, AVC=AVC= 1717 dollars per unit, and ATC=ATC= 2121 dollars per unit.
  6. A market for fireworks is shown in the graph. Fireworks create noise and air pollution that harms nonbuyers, a negative externality. Based on the externality shown in the graph, is the market outcome socially efficient?
  7. How does the imposition of a per-unit tax on a product sold by a perfectly competitive firm affect its cost curves?
  8. Using the PPC shown, which statement best describes how opportunity cost changes as the economy moves along the curve from point A toward point C?
  9. Based on the firm's cost and revenue information, which statement correctly compares accounting and economic profit? A small gym has total revenue of $160,000 and explicit costs of $120,000. The owner also gives up a $25,000 salary elsewhere and uses a storefront he owns that could earn $10,000 per year in rent.
  10. A monopolistically competitive firm sells differentiated athletic shoes. In the short run, it sets MR=MCMR=MC and earns economic profit because P>ATCP>ATC at the chosen quantity. Based on the monopolistically competitive firm's situation, which feature explains why long-run economic profit is zero (after entry occurs)?
  11. Based on the supply curves shown for corn, farmers expect the price of corn to be higher next month and decide to hold back current sales. Which change could have caused the shift from S1S_1 to S2S_2?
  12. A perfectly competitive firm is producing at a quantity where the market price is 1010, its marginal cost is 88, and its average total cost is 99. To maximize profit, this firm should
  13. Based on the monopsonistic labor market shown in the table, a single nursing home is the only major employer of certified nursing assistants in a rural town. The nursing home faces an upward-sloping labor supply, so its marginal factor cost (MFC) exceeds the wage. The nursing home's marginal revenue product (MRP) of labor schedule is also shown. How many workers does the monopsonist hire and at what wage? Monopsony labor market data
    Workers (L)Wage ($/hour)MFC ($/hour)MRP ($/hour)
    1101034
    2111230
    3121426
    4131622
    5141818
    6152014
  14. The primary way in which inheritance contributes to economic inequality is by...
  15. Given the resource limitation described, a household has a $120 weekly grocery budget. The family wants to buy $80 of fresh produce and $70 of meat this week, but the budget does not allow purchasing both amounts. Which fundamental economic problem is illustrated?
  16. Based on the monopsonistic labor market shown in the table, a single food-processing plant is the only employer of line workers in an isolated region. The plant faces an upward-sloping labor supply, so marginal factor cost (MFC) exceeds the wage. The table provides wage, MFC, and the marginal revenue product (MRP). How many workers does the monopsonist hire and at what wage? Table: Food-Processing Plant Labor Market - Labor (workers): 1, 2, 3, 4, 5 - Wage ($ per worker): 12, 13, 14, 15, 16 - MFC ($): 12, 14, 16, 18, 20 - MRP ($): 19, 17, 15, 13, 11
  17. A firm selling a product with a linear demand curve will maximize its total revenue by setting the price at the point on the demand curve where the price elasticity of demand is
  18. A market has several firms selling differentiated athletic shoes. Each firm has some control over its own price, but firms can enter over time if they can obtain financing and shelf space. Based on the market characteristics described, which feature distinguishes imperfect competition from perfect competition?
  19. A consultant charges 150,000150,000 for a market analysis report. A company pays this fee and receives the report. After reviewing the report, the company must decide whether to launch a new product, which requires an additional investment of 500,000500,000. In making the decision to launch the new product, the 150,000150,000 fee for the report should be regarded as
  20. Based on the monopolistically competitive firm's situation, a florist sells differentiated bouquets. In the short run, the firm earns economic profit. In the long run, what happens to profit in the long run?

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