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2016 AP Microeconomics Practice Exam Free-Response Questions Free Download

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1)Kohelis Mining is a monopoly and is currently operating at a loss.

  1.  Draw a correctly labeled graph and show each of the following.
    1. The profit-maximizing quantity, labeled QM
    2. The profit-maximizing price, labeled PM
    3. The average total cost curve, labeled ATC
    4. The allocatively efficient quantity, labeled QA
  2. Suppose the government grants Kohelis Mining a lump-sum subsidy such that the firm earns zero economic profit.
    1. On your graph from part (a), shade the area of the subsidy.
    2. Will the profit-maximizing quantity increase, decrease, or remain the same? Explain.
  3. Suppose instead the government provides Kohelis Mining a per-unit subsidy such that the firm earns zero economic profit.
    1. Will the profit-maximizing quantity increase, decrease, or remain the same? Explain.
    2. Will the price paid by consumers increase, decrease, or remain the same?
  4. In this market, will the lump-sum or the per-unit subsidy lead to an increase in the total consumer surplus, or is the change indeterminate? Explain.

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