- A.The only statement that is true for a monopolistic firm is statement A—the profit maximizing quantity for all
monopolists is where marginal cost is equal to marginal revenue. - D. The demand curve that a monopolist faces is the industry demand curve because it makes up the market for its
product. Choice A is incorrect because monopolists do not produce the efficient level of output. The price that a
monopolist charges is the price read off the demand curve corresponding to the quantity at which marginal cost is
equal to marginal revenue, not the price where marginal cost equals marginal revenue (Choice B). Choice C is
incorrect because the price that a monopolist charges is not decided in the marketplace, but it is actually set by
the firm. - C.The elastic portion of the demand curve is the portion AC. This is the only portion that is elastic because it is
the only portion that can be influenced by the consumer by his or her demand. - B.If the market in which the monopolist operates becomes perfectly competitive, the monopolistic firm would
have to charge a price where marginal cost is equal to average total cost—in this case P(2). - E.If the government puts a tariff on imported wines, the cost to producers will go up and so will the price for
consumers. This increase in price will yield a lower quantity demanded, and the quantity of French wine imported
will decrease. - D. Because apples and oranges are complements, a decrease in the price of apples will cause an increase in the
quantity demanded of apples. Since oranges are complements to apples, the increase in the demand for apples
will cause an increase in the demand for oranges. Apples and oranges cannot be substitutes because if the price
of apples fell, there would be a decrease in the quantity demanded of oranges (Choice E). - B.The rebate will make the cost of domestic automobiles lower for consumers. This lower price will attract
consumers of foreign automobiles into the domestic market, and there will be fewer foreign automobiles sold. - E.The invention will effectively shift Farmer Jill’s cost curves downward, allowing Farmer Jill to produce more
grapes. Since the grape market is perfectly competitive, Farmer Jill will be able to sell as many grapes as she
wants to at market price. - E.Price floors are established in order to benefit producers at the expense of consumers. Consumers pay a higher
price for the good, and producers capture the benefits of this higher price charged in the market. - C.Price ceilings usually cause shortages in a market because at the lower price that is set by a price ceiling,
consumers are willing to buy a large quantity, but producers are not willing to produce this quantity at such a low
price. - C.Using the figure provided we can see that the ratio of shorts to pants for Country B is 1/1 and for Country A it
is 3/1. Using this ratio we can see that Country A clearly has a comparative advantage in shorts because they can
produce three shorts for every pair of pants they forego making. Also, we can see that Country B has a comparative
advantage in pants because for every pair of pants they produce they forego one pair of shorts. However, Country A
has to give up three pairs of shorts in order to produce one pair of pants. - C.The marginal revenue for perfectly competitive firms is equal to the market price of the goods they produce.
In this case the best choice is line AC. - D. If the government gives food vouchers to its citizens, one of the beneficiaries will be the producers of food
because the vouchers will increase the demand for food.
Part IV: AP Macroeconomics & Microeconomics Tests