AP_Krugman_Textbook

760 section 14 Market Failure and the Role of Government

Answer (10 points)

1 point:Correctly labeled axes (“Price, cost per unit” or “Dollars per unit” on
the vertical axis, “Quantity” or “Q” on the horizontal axis)

1 point:Downward-sloping ATCcurve

1 point:Downward-sloping MCcurve below the ATCcurve

1 point:Unregulated quantity QU shown on the horizontal axis where MC=MR

1 point:Unregulated price PUfound on a downward-sloping demand curve
above QUand shown on the vertical axis

1 point:Correct profit rectangle

1 point:Consumer surplus triangle shown below the demand curve and above
the price

1 point:Regulated price and quantity PRand QRshown on the appropriate
axes, corresponding to where the demand curve crosses the average total cost
curve.

1 point:Consumer surplus will increase

1 point:Profit will decrease to zero

ATC

MR D

MC

PU

PR

0 QU QR Quantity

Price,

cost per

unit

Profit

without

regulation

Consumer surplus

without regulation

2. List and describe three different public policy approaches to
   monopoly.