AP Microeconomics : Perfectly Competitive Markets

Study concepts, example questions & explanations for AP Microeconomics

varsity tutors app store varsity tutors android store

Example Questions

Example Question #61 : Perfectly Competitive Markets

Which of the following is a source of monopoly power?

Possible Answers:

Barriers to entry

Free markets

Perfect competition

Demand elasticity

Antitrust laws

Correct answer:

Barriers to entry

Explanation:

Monopolies often arise because of barriers to entry, which helps prevent firms from entering the market. Barriers to entry can enable one firm to dominate the market without the threat of competition from other firms. 

Example Question #62 : Perfectly Competitive Markets

Use the following table to answer this question:


Screen_shot_2014-03-25_at_5.02.03_pm

What is the average total cost if the firm decides to produce 5 units?

Possible Answers:

$

$

None of the other answers

$

$

Correct answer:

$

Explanation:

Average total cost is the sum of the average fixed cost and average variable cost of producing a good. For the fifth good, the average fixed cost would be $40 while the average variable cost would be $120, which gives you a sum of $160.

Example Question #63 : Perfectly Competitive Markets

Use the following table to answer this question:

Screen_shot_2014-03-25_at_5.02.03_pm

If the market price of the good is $125, how many goods will the firm produce to maximize its profits?

Possible Answers:

Correct answer:

Explanation:

The firm will continue to produce until marginal cost equals marginal revenue. In this case, the market price of the good is the firm's marginal revenue, since that is the amount it receives for selling each good. Thus, the firm will continue to produce the good as long as its marginal cost is lower than $125.

Example Question #63 : Perfectly Competitive Markets

If the price of movie tickets drops from $10 to $9, and then the quantitiy demanded increases from 50 to 60, the demand for movie tickets is:

Possible Answers:

inelastic

elastic

perfectly elastic

unit elastic

perfectly inelastic

Correct answer:

elastic

Explanation:

Price elasticity of demand is the measure of the responsiveness of the quantity demanded of a good to the change in its price. Elasticity is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the price elasticity demand of movie tickets is 2 (20% change in quantity demanded divided by 10% change in price). If a good's elasticity is greater than 1, it is considered elastic.

Example Question #65 : Perfectly Competitive Markets

Use the following table to answer this question:

Screen_shot_2014-03-25_at_5.02.03_pm

If the firm decides to produce 10 goods, what would be its average fixed cost?

Possible Answers:

$

$

$

$

$

Correct answer:

$

Explanation:

From the information provided, we know that the total fixed cost of production is $200. The average fixed cost can be calculated by dividing the total fixed cost of production by the number of goods produced. In the case of 10 goods produced, the average fixed cost would be $200 (Total fixed cost) divided by 10 (Number of goods produced), which is $20.

Example Question #64 : Perfectly Competitive Markets

Which of the following is the best example of consumer surplus?

Possible Answers:

None of the other answers.

A pizzeria has a marginal cost of producing a pizza pie of $5 and sells it for $7.

Because of a special discount, a customer finds that the price of pizza has been reduced by 25% for the day.

A hungry man pays $3 for a slice of pizza, but would have gladly paid $5 for it.

A pizza worker who is willing to accept a job for $9 per hour is offered $10 per hour.

Correct answer:

A hungry man pays $3 for a slice of pizza, but would have gladly paid $5 for it.

Explanation:

Consumer surplus is the diffence between what an individual is willing to pay for a good and its market price. Consumer surplus occurs when the consumer's willingness to pay is higher than the good's market price, as in the example where the hungry man pays $3 for a slice of pizza, but would have gladly paid $5 for it.

Example Question #65 : Perfectly Competitive Markets

Which of the following can cause a pizzeria's cost curves to shift upward?

Possible Answers:

A decrease in the pizzeria's output

An increase in the pizzeria's output

A decrease in wages

An increase in the pizzeria's prices

An increase in the price of cheese

Correct answer:

An increase in the price of cheese

Explanation:

The only factor that would shift the pizzeria's cost upward is an increase in the price of cheese, one of the pizzeria's inputs. A decrease in wages would shift the cost curve upward. Changes to the pizzeria's output or prices would not shift the pizzeria's cost curve in any direction.

Example Question #66 : Perfectly Competitive Markets

If an increase in the price of pizza causes a decrease in the demand for soda, then the two goods are:

Possible Answers:

substitute goods

normal goods

giffen goods

luxury goods

complementary goods

Correct answer:

complementary goods

Explanation:

If an increase in the price of pizza causes a decrease in the demand for soda, then the two goods are complementary goods, or goods that are typically consumed together. Thus, the two goods' demand are affected by the demand of the other good. As the price of pizza increases, its demand will likely decrease. The decrease in demand for pizza causes a decrease in demand for soda because the two goods are complementary.

Example Question #67 : Perfectly Competitive Markets

If the price of hamburgers drops from $5 to $4 and the quantity demanded increases from 100 to 110, then the demand for movie tickets is:

Possible Answers:

perfectly elastic

perfectly inelastic

inelastic

elastic

unit elastic

Correct answer:

inelastic

Explanation:

 

Price elasticity of demand is the measure of the responsiveness of the quantity demanded of a good to the change in its price. Elasticity is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the price elasticity demand of movie tickets is 0.5 (10% change in quantity demanded divided by 20% change in price). If a good's elasticity is less than 1, it is considered inelastic.

 

Example Question #68 : Perfectly Competitive Markets

Which of the following is true of the marginal cost of providing a public good to one additional individual?

Possible Answers:

It increases as the number of goods provided increases.

It decreases as the number of goods provided increases.

It is negative.

It is positive.

It is equal to zero.

Correct answer:

It is equal to zero.

Explanation:

A pure public good is non-rival, which means that use by one individual does not reduce its availability to others, and non-excludable, which means that an individual cannot be prevented from consuming the good. Because of its non-rivalrous nature, a public good's consumption has zero marginal cost. A lighthouse is a classic example of a public good. An additional person's use of the lighthouse does not have any associated marginal cost, since its use is non-rivalrous.

Learning Tools by Varsity Tutors