Title Practice - Unit3 FRQ QB.pdf ✅

In answering the question, 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. Bestmilk, a typical profit-maximizing dairy firm, is operating in a constant-cost, perfectly competitive industry that is in long-run equilibrium. a. Draw correctly labeled side-by-side graphs for the dairy market and for Bestmilk and show each of the following. i. Price and output for the industry ii. Price and output for Bestmilk b. Assume that milk is a normal good and that consumer income falls. Assume that Bestmilk continues to produce. On your graphs in part (a), show the effect of the decrease in income on each of the following in the short run. i. Price and output for the industry ii. Price and output for Bestmilk iii. Area of loss or profit for Bestmilk c. Following the decrease in consumer income, what must be true for Bestmilk to continue to produce in the short run? d. Assume that the industry adjusts to a new long-run equilibrium. Compare the following between the initial and the new long-run equilibrium. i. Price in the industry ii. Output of a typical firm iii. The number of firms in the dairy industry 1. Respond to all parts of the question. AP MICROECONOMICS Test Booklet All About U3 FRQ AP Microeconomics Page 1 of 50
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. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. The table below shows the total costs faced by Allura’s Little Robotics Company for different quantities of Good S sold. Quantity Total Cost Allura’s Little Robotics Company sells Good S in a perfectly competitive market with a downward-sloping demand curve and an upward-sloping supply curve. The market price is per unit. (a) Calculate the average fixed cost of producing units. Show your work. (b) Identify the profit-maximizing quantity. Explain using marginal analysis. (c) Calculate the economic profit at the profit-maximizing quantity you identified in part (b). Show your work. (d) Based on your answer to part (c), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. (e) Based on your answer to part (c), will the market price increase, decrease, or stay the same in the long run? Explain. (f) The income elasticity of demand for Good S is , and the cross-price elasticity of demand for toy robots with respect to the price of Good S is . Based on your answer to part (e), what will happen to the demand for toy robots? Explain. (g) Now assume that the market in which Allura’s Little Robotics Company operates is in long-run equilibrium at a price of per unit. (i) Suppose shipping costs per order for Allura’s Little Robotics Company decrease. Will the profit-maximizing quantity Test Booklet All About U3 FRQ Page 2 of 50 AP Microeconomics

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. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. The table below shows the total variable costs faced by Emily’s Eye Care Store for different quantities of Good M sold. Quantity Total Variable Cost Emily’s Eye Care Store sells Good M in a perfectly competitive market with a downward-sloping demand curve and an upward-sloping supply curve. The market price is per unit, and the total fixed cost is . (a) Identify the profit-maximizing quantity. Explain using marginal analysis. (b) Calculate the economic profit at the profit-maximizing quantity you identified in part (a). Show your work. (c) Calculate the average fixed cost of producing units. Show your work. (d) Based on your answer to part (b), will the number of firms in the industry increase, decrease, or stay the same in the long run? Explain. (e) Based on your answer to part (b), will the market price increase, decrease, or stay the same in the long run? Explain. (f) The income elasticity of demand for Good M is , and the cross-price elasticity of demand for eyeglasses with respect to the price of Good M is . Based on your answer to part (e), what will happen to the demand for eyeglasses? Explain. (g) Now assume that the market in which Emily’s Eye Care Store operates is in long-run equilibrium at a price of per unit. (i) Suppose annual property taxes for Emily’s Eye Care Store increase by . Will the profit-maximizing quantity of Good M for Emily’s Eye Care Store increase, decrease, or stay the same in the short run? Explain. Test Booklet All About U3 FRQ Page 4 of 50 AP Microeconomics