Practice Test 12 - AP Microeconomics

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

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1. A comparison is made between two industries. In Industry C, there are many firms selling identical goods, and any firm can enter or exit easily. In Industry D, a single firm supplies the entire market for a specialized service and can set its own price, largely because competitors would face high fixed costs to enter. Based on the market characteristics described, which feature distinguishes Industry D from perfect competition?
2. Based on the payoff matrix below (profits in millions of dollars), which strategy is dominant for Firm A? Payoffs are listed as $(\text{Firm A},\ \text{Firm B})$. <table> <tr><th></th><th>Firm B: Improve Quality</th><th>Firm B: Keep Quality</th></tr> <tr><th>Firm A: Improve Quality</th><td>(35, 35)</td><td>(50, 20)</td></tr> <tr><th>Firm A: Keep Quality</th><td>(25, 45)</td><td>(45, 40)</td></tr> </table>
3. A monopolistically competitive firm, TuneTown Lessons, sells a differentiated product (guitar lessons with a specific teaching style). In the short run, it sets output where $MR=MC$ and charges a price above $ATC$, earning economic profit. Based on the monopolistically competitive firm's situation, what happens to profit in the long run (after enough time for entry or exit)?
4. A firm that packages snack foods expands output by adding layers of management and additional production lines. Based on the LRAC curve shown, which statement best explains the firm's diseconomies of scale at high output (from $80$ to $120$ units per day)?
5. A coastal town has an open-access fishery with no permits and no enforceable catch limits. Any fisher can enter, but each additional fish caught leaves fewer fish available for others. Based on the characteristics described, which type of good is the fish in the open-access fishery?
6. Based on the market outcome shown in the table, which region corresponds to deadweight loss (DWL) when the market produces $Q=2$ units instead of the socially efficient quantity? Table (per unit): - Unit 1: $MB=\$80$, $MC=\$10$ - Unit 2: $MB=\$70$, $MC=\$20$ - Unit 3: $MB=\$60$, $MC=\$30$ - Unit 4: $MB=\$50$, $MC=\$40$ - Unit 5: $MB=\$40$, $MC=\$50$
7. Based on the monopsonistic labor market shown in the table below (a single warehouse is the only large employer for forklift operators in the area), how many workers does the monopsonist hire and at what wage? Assume the warehouse hires where $MRP = MFC$ and pays the wage on the labor supply curve at that level of employment. Table: Labor Supply to the Firm and Marginal Factor Cost

   Operators hired (L)	Wage ($/hour)	MFC ($/hour)
   1	14	14
   2	15	16
   3	16	18
   4	17	20
   5	18	22
   6	19	24

   The warehouse's marginal revenue product (MRP) schedule is: $MRP(1)=26$, $MRP(2)=24$, $MRP(3)=22$, $MRP(4)=20$, $MRP(5)=18$, $MRP(6)=16$.​
8. A city is considering the following goods and services: - Street lighting: once installed, it illuminates the street for everyone and it is not feasible to exclude nonpaying residents. - Metered parking spaces: drivers must pay at a meter to use a space, and once occupied, the space is unavailable to others. - Unrestricted groundwater from a shared aquifer: any farmer can pump water without a permit, and pumping by one farmer reduces water available to others. - Members-only gym: only paying members can enter, and it is typically not crowded enough to prevent others from working out. Based on the characteristics described, which good would be underprovided by the market due to the free-rider problem?
9. Based on the firm's cost and price information, should the firm produce or shut down in the short run? Assume the firm is a price taker in a perfectly competitive market and the market price is $P=\$11$ per unit. At the firm's profit-maximizing output, $AVC=\$8$, $ATC=\$12$, and the firm's fixed cost is positive.
10. Market O (designer sneakers) has many brands, products are differentiated, firms advertise, and each brand chooses its price. Market P (a competitive grain market) has many sellers and identical output, so each firm takes price as given. Based on the market characteristics described, which statement is true for all imperfectly competitive firms (such as those in Market O)?
11. Two markets are described. Market 1 has many firms selling identical products, firms are price takers, and entry is easy. Market 2 has many firms selling similar but differentiated products (different styles and brands), firms have some control over price, and entry is relatively easy. Based on the market characteristics described, which feature distinguishes imperfect competition in Market 2 from perfect competition in Market 1?
12. Based on the trade graph shown for imported smartphones in Country D, the world price is $P_W = 300$ each. At $300, domestic quantity demanded is 1.2 million and domestic quantity supplied is 0.4 million. The government provides a per-unit subsidy to domestic smartphone producers, shifting domestic supply right, and the domestic price remains $300 because the country is a small importer. What is the effect of the subsidy on the quantity of imports?
13. In a competitive labor market for electricians, the government expands access to apprenticeship programs, increasing the number of qualified electricians over time. Based on the labor market graph shown, which change best explains the shift shown?
14. A homeowner installs a motion-activated security camera system inside their house. Only the homeowner can decide who may view the footage, and if one person views the footage it does not prevent another authorized person from viewing it later. Based on the characteristics described, which type of good is the security camera service and footage access?
15. Consider three markets: (1) wheat farming with many sellers and identical wheat, (2) local electricity distribution with one seller and strong entry barriers, and (3) fast-casual restaurants with many sellers and differentiated menus. Based on the market characteristics described, which statement is true for all imperfectly competitive firms?
16. A market for public certification classes in food safety is shown. Certification reduces the risk of foodborne illness for customers, creating a positive externality. Based on the externality shown in the graph, is the market outcome socially efficient?
17. A town maintains an open-access fishing lake with no entry fee and no effective enforcement of catch limits. Any person can fish, but as more fish are caught, fewer fish remain for others to catch. Based on the characteristics described, which type of good is the fish in the lake?
18. Given the resource limitation described, a household has a monthly budget of $120 for entertainment and wants to buy (1) two movie tickets for $30 total, (2) a streaming subscription for $15, and (3) three concert tickets for $120 total. Buying all three would cost $165, but the budget is $120. The situation best demonstrates that…
19. Using the PPC shown, which statement best compares the opportunity cost of increasing Good X by 10 units near point A versus near point C?
20. A monopolist airline sells the same seat on a route at two different prices: $180 for tickets purchased at least 21 days in advance and $420 for tickets purchased within 3 days of departure. The airline does not observe each traveler's exact willingness to pay, but it can enforce these timing rules and prevent resale. Based on the monopolist's pricing strategy, which condition makes this pricing strategy possible?

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