Official AP Microeconomics FRQ Discussion!

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21

<p>In 2d, the tax does decrease output. In this type of situation, it would be possible for it to not decrease output, since it's just one firm, but the numbers work out so that it does. With the tax, the marginal revenue is now $18. Since the marginal cost of the 4th unit is $19, the firm will produce one less unit.</p>

<p>1a(iii) is not when the price is zero. Consumer surplus would be maximized, but producer surplus would be very negative. Remember that total surplus is the difference between what something is worth to consumers and what it is worth to producers, or the demand minus the marginal cost. When something is worth more to a consumer than to a producer, it is efficient for the producer to sell that item to the consumer. When it is worth more to the producer than the consumer, it is inefficient. Before P4, Q3, each unit sold is worth more to the consumer, so selling them increases surplus. After P4, Q3, each unit is worth more to the producer, since each additional unit is so expensive, so selling them decreases surplus.</p>

22

<p>33 % is not a 3. I think like a 45 percent?</p>

23

<p>ah so it's at the allocatively efficient point then... hm... good idea</p>

24

<p>yeah more like 40% assuming i get equivalent MC score. heh :D</p>

25

<p>Bleh, then I messed up 2b), as I thought no one would pay for the fixed cost at 0 output, so I went 20+7 for the cost of the first output.
Anyways:
2 c) 4 outputs, P=MC, at 4 outputs, it is the closest to this rule at $19 MC.
2 d) More firms will enter the industry, as the industry's firms are making economic profit as P > MC.
2 e) Decrease... need I say more ?</p>