<p>Do you think I could get partial credit for some of my answers? For instance, for the 2nd Micro FRQ I simply said that she would by more coffee because it has a higher marginal utility. Would I get some points for at least somewhat knowing the concept of marginal utility, even if I forgot to use the formula MU/P? The same thing happened to me with the first FRQ where my class never discussed a lump-sum subsidy but I think I still could convey to the graders that I know how a subsidy (per-unit) works. Just grubbing for any and all points haha.</p>
<p>The catch was that it was computer EQUIPMENT, which compelled me to label it as a capital account.
She needed more coffee- it had more marginal utility at that point in time</p>
<p>More fudge because the MU per dollar was more for fudge (they wouldn't provide how much she spend for no reason...)</p>
<p>
[quote]
The curve for the firm is perfectly inelastic, but the curve for the industry probably is not. If firms charged exhorbitant amounts for products in the same industry, consumers might just move to a substitute good that's in a different industry. I think that is part of it.
[/quote]
</p>
<p>But if you're a monopoly, doesn't the curve for the firm = the curve for the industry, though? ;)</p>
<p>So for #1 Micro, was it change in the short, nothing in the long? Or change in the long, nothing in the short?</p>
<p>
[quote]
But if you're a monopoly, doesn't the curve for the firm = the curve for the industry, though?
[/quote]
</p>
<p>That's why monopolies don't have perfectly inelastic demand.</p>
<p>Blazer, don’t obsess. You still get partial credit for answers even if you don’t have every step. Micro answers, as requested (I could tell you macro too – maybe later -- but I’m lazy now):</p>
<p>1:
a) draw standard side-by-side graphs (firm = price taker, show price firm at min ATC, Q firm set @ MR = MC, Q/P industry @ intersection, etc)
b) Reduce ATC but leave MR/MC unaffected. Number of firms in industry is the same b/c firms cannot enter/exit in SR. Profits increase b/c subsidy is good for firm. Like many things in Economics, the quantity of output is arguable and we will see what Collegeboard says. Either: a) supply and demand did not shift, MR did not change, and hence output unchanged, or b) supply shifted to the right because input costs decreased, MR therefore decreased (firm = price taker), and hence output for the firm decreased b/c Q set @ MR = MC and MR decreased while MC was the same. Please note that a LUMP-SUM tax/subsidy CANNOT increase MR; it can be thought of as a decrease in total costs or increase in total revenues but never as a change in the marginal unit.
c) SR Profits -> Entry -> S to right. Hence # firms increase, P decreases, output increases.</p>
<p>2:
a) marginal utility = additional utility (measured in utils) from one additional unit of X
b) Fudge MU/$ = 12/2 = 6 utils/$ > coffee = 20/4 = 5 utils / $ so more fudge and less coffee to maximize total utility.
c) Elasticity of demand = % change in Q/ % change in P = 0/k = 0. Seller will pay none and consumer will pay all of tax (because consumer is “indifferent” to price increases consumer will theoretically spend an infinite amount and is willing to pay the tax)</p>
<p>3:
a) draw standard graphs. An effective ceiling is below the equilibrium level and leads to a shortage.
b) set Q @ MR = MC for profit maximization so Q1 and set Q @ P = MC for AE (allocative efficiency) so Q3
c) Making a profit equal to TR – TC = P1P3DF box</p>
<p>ATC shifts downard
Also in the short-run industries enter and in the long-run they exit. This is the correct answer. I am sure.</p>
<p>You can be sure without being correct. </p>
<p>See Short</a> Run and Long Run Supply in Competitive Markets :
"On the short run supply curve the number of firms in the industry is constant because no firm can change its fixed factors, which include land."</p>
<p>Also See Mitchell</a> Langbert's Blog: Firms' Goals and Pricing :
"In the short run (longer than very short run) the number of firms is fixed but firms can adjust the amount they are producing."</p>
<p>And with respect to the long run, it makes no sense that they will exit in the long-run. There will be a short-run economic profit, and then they will continue to enter over long-run until a normal (economic profit = 0) is reached. Industries will not leave just because they are making less of an economic profit -- the very definition of an economic profit implies that it is not worth leaving!</p>
<p>ehighmark2443, I got the exact same answers as you. And I am sure that Collegeboard intended for the short-run quantity to be constant. In the past (see past exams at AP Central) they have tested students on lump-sum subsidies and the scoring guidelines emphasize that quantity will not change. Since a lump-sum subsidy does not depend on quantity, what incentive do firms have to produce more?</p>
<p>Haha naw im right, my econ teacher did it and told us. Trust me.</p>
<p>
[quote]
3:
a) draw standard graphs. An effective ceiling is below the equilibrium level and leads to a shortage.
b) set Q @ MR = MC for profit maximization so Q1 and set Q @ P = MC for AE (allocative efficiency) so Q3
c) Making a profit equal to TR – TC = P1P3DF box
[/quote]
</p>
<p>I'm pretty sure (c) is "Incurring a loss" because ATC is above P. Typo?</p>
<p>ya its incurring a loss...god that almost scared me to death -.-...</p>
<p>do any of you know if the AS and AD curves in AS/AD model have to be drawn as curves or could just be drawn as normal sloped lines? lol</p>
<p>CB's released FRQ answers have them only as lines, not curves. i would think (and hope) that means we can use lines...</p>
<p>Before I answer questions, please note that in question 1, part c, when I said that "output increases" I meant that it increases for the industry due to entry. However, output for individual firms that were already making an economic profit will decrease because P=MR will decrease.</p>
<p>Answering questions:</p>
<p>Sorry, asc3nd your Econ teacher sucks. I don't care what he/she/it(?) said or what God told you.</p>
<p>To drake/addiction, definitely incurring a loss. My bad. Same box though.</p>
<p>To diehardscubsfan, in response to question: "Since a lump-sum subsidy does not depend on quantity, what incentive do firms have to produce more?"</p>
<p>Answer = There isn't an incentive to produce more, but there's an argument to be made that they will produce less because supply will shift to the right even in the short-run. Here's the argument:</p>
<p>The subsidy will shift ATC to left closer to AVC. Firms have no incentive to produce more/less in very short-run b/c MR doesn't change in very short-run. However, you could make an argument that quantity will be affected in the medium short-run even before other firms have entered the industry. If the lump-sum subsidy decreases production costs, it could also decrease industry price because firms have "room" to try to undercut each other (i.e. firms have the ability and a motive to lower prices so that they have a competitive advantage). This decrease in input costs and its resultant undercutting would lower P=MR for the industry and cause an individual firms' output to decrease in the medium short-run, even before other firms have entered. In other words, even without entry/exit in the marketplace the price will still fluctuate based on input costs because there is still competition between firms to keep prices low (so that they can sell more). This answer is not the basic answer that they were probably looking for so don't worry about it -- I'm just saying you can argue that too and it is technically correct. In more advanced economic courses they address the "very short-run," "medium short-run," etc.</p>
<p>Would things change because it is an **annual* lump sum subsidy*? Because it's being refreshed every year, wouldn't that make the situation similar to a per-unit subsidy?</p>
<p>No, things wouldn't change. The thing that differentiates a per-unit subsidy from a lump sum subsidy is that a per-unit subsidy changes MR/MC while a lump sum does not. Just because a lump sum subsidy is offered annually doesn't mean it is similar to a per-unit subsidy; the total subsidy of a per-unit subsidy varies with output while a lump-sum is fixed.</p>
<p>Lol, naw im right, ur wrong buddy. We'll wait till July ... cause I know for a fact i'm right.</p>
<p>O and not to say that I was in a chatroom with 60+ AP econ teachers and some big people discussing the AP exam questions (FRQ) like every year. And the answer to the question was
short-run: industries enter
long-run: they exit
So, im sorry, but your econ teacher sucks.
Anyways, in the chatroom the only thing which mattered was that there was a big debate going on over capital/current good over computer, becaus it didn't specify if it was being imported or not. So my gut feeling says its not going to be scored. We'll see.</p>
<p>I think ehighmark2443 is right. The number of firms in the industry is fixed in the short-run (I put what asc3nd said but I think I was wrong).</p>