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admission, guidance, assessment, financial aid, enrollment, and teaching and learning. Among its best-known programs are the SAT®, the PSAT/NMSQT®,
the Advanced Placement Program® (AP®), and Pacesetter®. The College Board is committed to the principles of equity and excellence, and that
commitment is embodied in all of its programs, services, activities, and concerns.

Copyright © 2000 by College Entrance Examination Board and Educational Testing Service. All rights reserved. College Board, Advanced Placement
Program, AP, and the acorn logo are registered trademarks of the College Entrance Examination Board.
 2000 AP® MICROECONOMICS FREE-RESPONSE QUESTIONS

MICROECONOMICS
Section II
Planning time—10 minutes
Writing time—50 minutes

Directions: You have fifty minutes to answer all three of the following questions. It is suggested that you spend
approximately half your time on the first question and divide the remaining time equally between the next two
questions. In answering the questions, you should emphasize the line of reasoning that generated your results; it is
not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining
your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional
changes.

1. The diagram above shows the cost and revenue curves for a monopoly.
(a) How does a monopolist determine its profit-maximizing level of output and price?
(b) Using the information in the graph, identify each of the following for the monopolist.
(i) The profit-maximizing level of output and price
(ii) The line segment of the demand curve that is elastic
(c) Suppose that the industry depicted in the graph became perfectly competitive without changing the demand
or cost curves. Identify the equilibrium price and output that would prevail in the perfectly competitive
market.
(d) Using the information in the graph, identify the area of consumer surplus for each of the following.
(i) The profit-maximizing monopoly
(ii) The perfectly competitive industry
(e) Define allocative efficiency.
(f) To be allocatively efficient, what level of output should the monopolist produce?
(g) Should the government use a per-unit tax or a per-unit subsidy to lead the monopolist to produce the allo-
catively efficient level of output? Explain how this tax or subsidy would achieve the allocatively efficient
level of output.
Copyright © 2000 College Entrance Examination Board and Educational Testing Service. All rights reserved.
AP is a registered trademark of the College Entrance Examination Board.
-2- GO ON TO THE NEXT PAGE.
 2000 AP® MICROECONOMICS FREE-RESPONSE QUESTIONS
2. Assume that a firm produces output using one fixed input, capital, and one variable input, labor. The firm can
sell all of the output it produces at a market price of $3 each, can hire all of the workers it wants at a market
wage rate of $11 each, and has fixed costs of $10. It faces the following production schedule.

Number of Total
Employees Output
0 0
1 14
2 26
3 35
4 42
5 46
6 48

(a) In what kind of market structure does this firm sell its output? How can you tell?
(b) In what kind of market structure does this firm hire its employees? How can you tell?
(c) Using marginal revenue product analysis, how many employees should this firm hire to maximize short-run
profits? How can you determine that?
(d) Based on your answer in part (c), how many units of output will this firm produce?
(e) At the level of output you identified in part (d), is the firm earning an economic profit, a normal profit, or
suffering a loss? How can you tell?

3. Assume all of the following about imported and domestically produced shoes.
œ They are sold in two separate and perfectly competitive markets.
œ They are close substitutes.
œ The demand for both is price elastic.

Now assume that a tariff is imposed on imported shoes.

(a) Using a correctly labeled graph, show the impact of the tariff on each of the following in the market for
imported shoes.
(i) Price
(ii) Output
(b) Using a new correctly labeled graph, show the impact of the tariff on each of the following in the market
for domestically produced shoes.
(i) Price
(ii) Output
(c) Given that the demand for imported shoes is price elastic, will expenditures on imported shoes by consumers
increase, decrease, or remain the same? How do you know?

END OF EXAMINATION

opyright © 2000 College Entrance Examination Board and Educational Testing Service. All rights reserved.
AP is a registered trademark of the College Entrance Examination Board.
-3-
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 AP Microeconomics
2000 Scoring Guidelines

The materials included in these files are intended for non-commercial use by AP
teachers for course and exam preparation; permission for any other use must be sought
from the Advanced Placement Program. Teachers may reproduce them, in whole or in
part, in limited quantities, for face-to-face teaching purposes but may
not mass distribute the materials, electronically or otherwise. These materials and any
copies made of them may not be resold, and the copyright notices must be retained as
they appear here. This permission does not apply to any third-party copyrights
contained herein.

These materials were produced by Educational Testing Service (ETS), which develops and administers the examinations of the Advanced Placement Program for the
College Board. The College Board and Educational Testing Service (ETS) are dedicated to the principle of equal opportunity, and their programs, services, and
employment policies are guided by that principle.

The College Board is a national nonprofit membership association dedicated to preparing, inspiring, and connecting students to college and opportunity.
Founded in 1900, the association is composed of more than 3,900 schools, colleges, universities, and other educational organizations. Each year, the College Board
serves over three million students and their parents, 22,000 high schools, and 3,500 colleges, through major programs and services in college admission, guidance,
assessment, financial aid, enrollment, and teaching and learning. Among its best-known programs are the SAT®, the PSAT/NMSQT™, the Advanced Placement
Program® (AP®), and Pacesetter®. The College Board is committed to the principles of equity and excellence, and that commitment is embodied in all of its
programs, services, activities, and concerns.

Copyright © 2001 by College Entrance Examination Board. All rights reserved. College Board, Advanced Placement Program, AP, and the acorn logo are registered
trademarks of the College Entrance Examination Board.
Scoring Guideline for Microeconomics Question 1:

[2+2+1+2+1+1+2=11]

Part (a)
(i) MR = MC for output (1 point)
(ii) P from Demand curve (1 point)

Part (b)
(i) Q1 and P5 (or Point B) (1 point)
ii) A to D (or range for which MR > 0) (1 point)
• It is not necessary for them to acknowledge that D technically shouldn’t be included
in this line segment.
• While other line segments (AB, AC, BC, BD, CD) are elastic, they include only a
portion of the line segment that is elastic and should not be given credit.
• Often, the answer to A) will be found in B), and can be acceptable as a correct
answer to A).
• Also, the student may attempt to answer this (and other) part of the
question with a simplified graph of his/her/its own, such as the one
below. If it is correctly labeled and is correct, this is acceptable.
P

MC Profit maximizing output here is Q1

P1 A Profit maximizing price is P1
A is the profit-maximizing point
Demand

Output
Q1 MR

Part (c)
Q2 and P4, (or point C) (1 point).

Part (d)
(i) ABP5 (monopoly) (1 point)
• If the answer to d) I) is incorrect but consistent with the student’s answer in b), credit
should be given.
(ii) ACP4 (perfect competition) (1 point)
• Again, there is a consistency problem; if the answer to ii) is incorrect but is consistent
with the (incorrect) answer the student gave in c), credit should be given.

Part (e)
P = MC ,or
MB = MC (1 point)
• This definition is entirely self-contained; there need be no reference to the graph to
get full credit.
Part (f)
Q2 ( 1point)
• If this answer is incorrect the student receives no credit even if it is consistent with
part e)

Part (g)
A per-unit subsidy. Merely the word “subsidy” is sufficient. (1 point).
ii) An explanation that the subsidy either (1 point)
1) lowers MC, or
2) raises MR, or
3) shifts the demand curve out.
• A statement that output increases is not sufficient.

Scoring Guideline for Microeconomics Question 2:

Question 2 [1+1+2+1+1 = 6 Points]

Part (a)
(1 point) Perfect competition (or pure competition) since price of output is given to the
firm
• “Because the firm is a price-taker” is also acceptable.

Part (b)
(1 point) Perfect competition since the wage rate is given to the firm (1 point)
• “Because the firm is a wage-taker” is also acceptable.

Part (c)
(2 points) 1 point for 5 workers; 1 point for the explanation

The MRP > w for 5 workers but not for 6.

• It is not sufficient to point out that the firm earns a profit (or its greatest profit) at 5
workers; some reference must be made to the fact that MRC (MFC, MC of labor, or
wages) is closest to MRP and is still greater than MRP at that level of output.

• The student must use MRP in the answer; MR is not sufficient.

Part (d)
(1 point) for 46 units of output. The output level must be consistent with the units of
labor selected in part c. In this case, a student who has the wrong number of labor in part
c. may still earn the point here if the output level is consistent with that quantity of labor
indicated by the student in part c.
Part (e)
TR: $138 (46 x $3) (1 point)
- TVC 55 (5 x $11)
- TFC 10
= Economic Profit $ 73

• Must be consistent with the student’s answer above.

• They do not have to show the actual profit; if they state that a profit is being earned
because TR > TC they receive credit.

Scoring Guidelines for Microeconomics Question 3

[2+1+2 = 5 Points]

Part (a) Market for Imported Shoes

(i) Correct graph (Labels: D,S,P, & Q) that includes an inward shift in supply (1
point)
(ii) P and Q changes correctly explained using the student’s graph of a) i). (1
point)

Part (b) Market for Domestic Shoes

Correct graph that includes a demand shift consistent with the price change in Part a
with
both P and Q consistent with the graph drawn (1 point)

Part (c)
(i) With an elastic demand for imported shoes, the increased price of imported
shoes will lead to a reduction in total expenditures ( 1 point).
• A student who has an incorrect answer in part a) may earn this point as long as the
analysis is consistent with the answer in part a).

(ii) Discussion of the proportional change in P and Q to explain the expenditure

change. (1 point)

• Be careful to work with the student’s output change in Part a.