Practice Test 8 - AP Microeconomics

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

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1. A concert venue is the only seller of tickets for a popular artist in a city. It sells the same seat type at different prices: $60 for tickets purchased at least 30 days in advance and $95 for tickets purchased within 48 hours of the show. The venue cannot observe each buyer's exact willingness to pay, but it uses the timing rule to separate buyers, and resale is restricted through a named-ticket system. Based on the monopolist's pricing strategy, which type of price discrimination is illustrated?
2. In a competitive market at equilibrium, producer surplus exists primarily because
3. Based on the monopolistically competitive firm's situation, a neighborhood bakery sells differentiated cupcakes. In the short run it earns economic profit because at $Q^*$, $P=\$4$ and $ATC=\$3$. In the long run, what happens to profit in the long run?
4. In one city, the market for wheat sold at a farmers' market has hundreds of small sellers offering an identical product, and each seller can sell any quantity at the going market price. In the same city, the market for home internet service has one provider that offers a unique network, faces high fixed costs to build lines, and can change its price without immediately losing all customers. Based on the market characteristics described, which market structure best fits the home internet service market?
5. Based on the payoff matrix below (profits in millions of dollars), what is the Nash equilibrium of this game? Payoffs are listed as $(\text{Firm A},\ \text{Firm B})$. <table> <tr><th></th><th>Firm B: Standardize Product</th><th>Firm B: Differentiate Product</th></tr> <tr><th>Firm A: Standardize Product</th><td>(38, 38)</td><td>(20, 45)</td></tr> <tr><th>Firm A: Differentiate Product</th><td>(45, 20)</td><td>(30, 30)</td></tr> </table>
6. A market for education (years of schooling) creates a positive externality because more educated workers raise productivity and civic participation. Based on the externality shown in the graph, is the market outcome socially efficient? Curves (linear): - Demand: $D=MPB: P=90-3Q$ - Social benefit: $MSB: P=120-3Q$ - Supply: $S=MPC=MSC: P=0+3Q$ (Price/Cost on vertical axis; Quantity of years of schooling (in millions) on horizontal axis.)
7. A consumer has $8 to spend on paperback books (B) and magazines (M). Books cost $4 each and magazines cost $2 each. Based on the marginal utility and price information in the table, which bundle maximizes utility given the budget? Marginal Utility Schedule

   Unit	MU of Books (utils)	MU of Magazines (utils)
   1	28	14
   2	20	12
   3	12	10
   4	6	8
   5	3	6

8. The supply of a unique piece of art is perfectly inelastic. If a new documentary greatly increases the public's desire to own this artwork, what will be the effect on its equilibrium price and quantity?
9. Given the resource limitation described, a farming community has a water allotment of 600 acre-feet for the growing season. Farmers want to use 450 acre-feet for almonds and 300 acre-feet for tomatoes, but the allotment cannot cover both plans. Which statement correctly explains why a choice must be made?
10. Based on the supply curves shown, the number of firms in the market decreases due to bankruptcies. Which change best matches the shift from S1 to S2?
11. A government regulates a profit-maximizing monopoly by imposing a price ceiling equal to its marginal cost at the socially optimal quantity. Which of the following is a guaranteed outcome?
12. A comparison is made between two markets for the same type of product. In Market 1, there are many firms, products are identical, and entry is easy. In Market 2, there are many firms, products are differentiated by branding and features, and entry is easy. Based on the market characteristics described, which feature in Market 2 is most directly responsible for firms having some control over price?
13. A monopolist concert promoter sells the same seat type using an online platform that uses a buyer's browsing history and device type to post a personalized take-it-or-leave-it price for that buyer. The promoter's algorithm estimates each buyer's maximum willingness to pay and sets the posted price accordingly. Based on the monopolist's pricing strategy, which type of price discrimination is illustrated?
14. An increase in the marginal product of auto workers due to the adoption of new robotics technology would most likely cause which of the following changes in the labor market for auto workers?
15. Based on the supply curve shown, which statement about producer behavior is consistent with moving upward along $S_1$ from a lower price to a higher price?
16. The price of hot dogs rises from $1.00 to $1.10 (a 10% increase). Over the same period, the quantity demanded of hot dog buns falls from 200 to 180 per day (a 10% decrease). Based on the changes described, using cross-price elasticity of demand (XED) between buns and hot dogs, are the two goods substitutes, complements, or unrelated?
17. When a government regulates a natural monopoly by setting a price ceiling equal to the average total cost, this is known as fair-return pricing. What is the outcome of this policy?
18. Suppose the calculated price elasticity of demand for a particular brand of cereal is $-0.8$. Which of the following statements is true?
19. A country has one firm that produces a life-saving drug. The drug is protected by a patent, and no close substitutes exist. In a separate market, many firms sell identical table salt with easy entry. Based on the market characteristics described, which feature distinguishes imperfect competition in the drug market from perfect competition in the salt market?
20. Based on the firm's cost and revenue information, which statement correctly compares accounting and economic profit? A firm has total revenue of $1,200 per week. Explicit costs are $700 in wages and $200 in rent. The owner also uses a building that could be rented out for $150 per week and $1,000 of personal funds that could earn $20 per week elsewhere.

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