1. The 2017 AP Microeconomics Exam: Top 10 mistakes
Chief Reader: Pamela Schmitt
Date: 28 July 2017

2. Agenda
Exam Developers
Scores
Areas of Strength
Areas of Weakness

3. Microeconomics Exam Developers
Committee Members.
David Burgin, Science Hill High School
Lynda Motiram, Meade High School
Thomas Kinnaman, Bucknell University
Esther Redmount, Colorado College
College Board Advisor
Sandra K. Wright, Adlai E. Stevenson High School
ETS Assessment Specialists
Fekru Debebe
Marwa Hassan
Larry Swanzer
Committee Chairs
Dee Mecham, The Bishop’s School
Patrick Scholten, Bentley University

4. Exams
63,021 U.S. Exams
14,000 International & Alternate Exams

5. Mean / Standard Deviation / Max
1. Perfect Competition (short-run and long-run adjustments) and Price Controls
Mean = 5.66 / Stdev = 2.84, Max = 10
2. Production and Cost in the short-run and long-run.
Mean = 1.91 / Stdev = 1.36, Max = 5
3. Market Failures: A Monopolist with a Negative Externality
Mean = 3.24 / Stdev = 1.64, Max = 7

6. Smoothed Composite Score

7. Q1 – Q3 Conditioned on Composite Score

8. 2017 AP Score Distribution N= 63,021
Microeconomics
Score
Final Cut Score
% At
% Below 1
18.9 2 36
12.8 3 45
18.5
31.7 4 55
28.3
50.2 5 69
21.5
78.5

9. Historical Score Distribution
2017
2016
2015
2014 1
18.9%
15.3%
17.9%
14.0% 2
12.8%
27.3%
28.9%
28.5% 3
18.5%
23.0%
19.9%
21.9% 4
28.3%
14.4%
16.0% 5
21.5%
20.0%
19.1%
19.6%

10. What students did well!

11. Drawing a market graph and correctly labeling the equilibrium price and quantity (84.0% in Q1)
1. Corn is used as food and as an input in the production of ethanol, an alternative fuel. Assume corn is produced in a perfectly competitive market.
(a) Draw correctly labeled side-by- side graphs for the corn market and a representative corn farmer.
On your graphs show each of the following.
(i) The equilibrium price and quantity in the corn market, labeled PM and QM, respectively
Answer: A graph with PM and QM correctly labeled from the intersection of a downward-sloping market demand curve and a upward-sloping market supply.
1. Students Did Well On:

12. Identifying the profit-maximizing price for a monopolist (Q3 82.7%)
3. The graph below shows the marginal social cost (MSC), marginal private cost (MPC), marginal social benefit (MSB), demand (D), and marginal revenue (MR) curves for a monopoly.
(a) Identify the monopolist’s
(ii) profit-maximizing price
Answer: P4.
2. Students Did Well On:

13. Shifting demand and finding the new equilibrium price and quantity (77
Shifting demand and finding the new equilibrium price and quantity (77.7% in Q1)
Assume the demand for ethanol increases. On your graphs in part (a) show what will happen to each of the following in the short run.
(i) The market price and quantity of corn, labeled P* and Q*
Answer: A rightward shift of the market demand curve from part (a) and a higher price and quantity, P* and Q*.
3. Students Did Well On:

14. 10 Most Common Errors AP Microeconomics: 2017

15. 10. Using information from the graph to identify a negative externality. 9. Identifying on the graph the profit- maximizing quantity when the government imposes a per-unit tax equal to the marginal external cost. 8. Using labels on the graph to identify the dollar value of the tax (which is the marginal external cost). 7. Calculate average total cost using data in a table. 6. Explaining what happens to price in a market in which the price of a substitute in production changes.
5. Calculate the lowest output price for a good sold in a competitive market, for which an additional unit of labor would be hired. 4. State the changes to price and quantity in the long run when firms in a perfectly competitive market have positive profits in the short run. 3. Shade the economic profits for a representative firm in the short run. 2. Explain the effect of a per-unit tax on the deadweight loss of a monopolist, who’s also facing a negative externality. 1. Using data in a table, identify that a firm operates with increasing returns to scale.
Overview Q1,Q2, Q3

16. 10. Using information from the graph to identify a negative externality. Q3 (53.6%)
Question: 3. The graph below shows the marginal social cost (MSC), marginal private cost (MPC), marginal social benefit (MSB), demand (D), and marginal revenue (MR) curves for a monopoly. (b) What information in the graph indicates that there is a negative externality? Answer: MSC > MPC OR that the MSC curve exceeds, is above, or is greater than the MPC curve. Key is MSC > MPC not that MSC > MR or that MPC > MR

17. 9. Identifying on the graph the profit-maximizing quantity when the government imposes a per-unit tax equal to the marginal external cost.Q3 (38.3%)
Question: 3. The graph below shows the marginal social cost (MSC), marginal private cost (MPC), marginal social benefit (MSB), demand (D), and marginal revenue (MR) curves for a monopoly. (d) In the case in which the government imposes a per-unit tax equal to the marginal external cost, identify each of the following. (ii)The profit-maximizing quantity associated with the tax Answer: The profit maximizing quantity associated with the tax is Q2. Key is Q is found where MSC = MR, not where MPC = MR cc

18. 8. Using labels on the graph to identify the dollar value of the tax (which is the marginal external cost).(Q3 32.0%)
Question: 3. The graph below shows the marginal social cost (MSC), marginal private cost (MPC), marginal social benefit (MSB), demand (D), and marginal revenue (MR) curves for a monopoly. (d) In the case in which the government imposes a per-unit tax equal to the marginal external cost, identify each of the following. (i) The dollar value of the tax, using the price labels from the graph Answer: The dollar value of the tax is P4-P1. Key is it is not the differences between P4 and P2; students used where MSC = D and where MPC = D

19. 7. Calculate average total cost using data in a table. (Q2 30.0%)
Question: 2. The table below shows the output a firm produces using different amounts of capital (K) and labor (L). The markets for capital and labor are perfectly competitive. The rental rate of capital is $75 per unit, and the wage rate is $200 per unit. In the short run, capital is fixed and labor is variable. (b) Assume now that the firm currently has two units of capital and is using three units of labor. (iii) Calculate the firm’s average total cost for its current level of production. Show your work. Answer: The firm’s average total cost is calculated; ATC= 75∗ ∗3 75 = 2+8=10 The key concept is that the quantity is 75; many students divided by the quantity of labor, 3.
Labor
Output with K=1
Output with K=2 1 10 20 2 25 50 3 38 75

20. 6. Explaining what happens to price in a market in which the price of a substitute in production changes.(Q1 26.5%)
Question:
1. Corn is used as food and as an input in the production of ethanol, an alternative fuel. Assume corn is produced in a perfectly competitive market.
(d) Soybeans are produced in a perfectly competitive market. Assume farmers can grow either corn or soybeans on the same land. What happens to the price of soybeans in the next planting season if the price of corn increases? Explain.
Answer: The price of soybeans in the next planting season will increase. This is because there is a decrease in the supply of soybeans as the higher price of corn encourages farmers to substitute corn for soybeans in production.
The key concept is that these are substitutes in production, so S shifts, many students indicated an increase in demand.

21. 5. Calculate the lowest output price for a good sold in a competitive market, for which an additional unit of labor would be hired. (Q2 23.6%)
Question: 2. The table below shows the output a firm produces using different amounts of capital (K) and labor (L). The markets for capital and labor are perfectly competitive. The rental rate of capital is $75 per unit, and the wage rate is $200 per unit. In the short run, capital is fixed and labor is variable. (b) Assume now that the firm currently has two units of capital and is using three units of labor. (iv) If the firm’s output is sold in a competitive market, what is the lowest output price at which the third unit of labor would be hired? Answer: MRP = P*MPL = MRC (MFC), solve for P. 200 = P*25, so if the 3rd worker is hired the P = $8 There are multiple concepts for students to know and apply to read the table, solve for MPL, and equate marginal revenue product to marginal resource (factor) cost.
Labor
Output with K=1
Output with K=2 1 10 20 2 25 50 3 38 75 25

22. 4. State the changes to price and quantity in the long run when firms in a perfectly competitive market have positive profits in the short run. (Q1 21.6%)
Question: 1. Corn is used as food and as an input in the production of ethanol, an alternative fuel. Assume corn is produced in a perfectly competitive market (c) Relative to your answer in part (b), state what will happen to the market equilibrium price and quantity of corn in the long run. Explain. Answer: The market quantity will increase and the market’s price will decrease in the long-run, because the positive profits (answer for part (b)) will cause new corn farmers will enter the market, which will increase the market supply curve. The key concept is that the entry of new firms shifts supply curve to the right (all parts are needed).

23. 3. Shade the economic profits for a representative firm in the short run. (Q1 21.2%)
Question: 1. Corn is used as food and as an input in the production of ethanol, an alternative fuel. Assume corn is produced in a perfectly competitive market (b) Assume the demand for ethanol increases. On your graphs in part (a) show what will happen to each of the following in the short run. (ii) The area of the profit or loss earned by the representative corn farmer, shaded completely Answer:
The key concept is that the price to the ATC on the Y-axis and over to the quantity at a new Q2; most students shade to min ATC.

24. 2. Explain the effect of a per-unit tax on the deadweight loss of a monopolist, who’s also facing a negative externality. Q3 (5.6%)
Question: 3. The graph below shows the marginal social cost (MSC), marginal private cost (MPC), marginal social benefit (MSB), demand (D), and marginal revenue (MR) curves for a monopoly. (e) Given the monopoly facing the negative externality, would the deadweight loss increase, decrease, or stay the same as a result of imposing the per-unit tax? Explain. Answer: The deadweight loss increases because the monopolist’s profit-maximizing quantity is equal to the socially optimal quantity before the tax and is less than the socially optimal quantity after the tax. The DWL for a monopolist is underproduction (Q3<Q5).
Monopolist DWL with no externality
Q5 is socially optimal with no externalities present.

25. 2. Explain the effect of a per-unit tax on the deadweight loss of a monopolist, who’s also facing a negative externality. Q3 (5.6%)
Question: 3. The graph below shows the marginal social cost (MSC), marginal private cost (MPC), marginal social benefit (MSB), demand (D), and marginal revenue (MR) curves for a monopoly. (e) Given the monopoly facing the negative externality, would the deadweight loss increase, decrease, or stay the same as a result of imposing the per-unit tax? Explain. Answer: The deadweight loss increases because the monopolist’s profit-maximizing quantity is equal to the socially optimal quantity before the tax and is less than the socially optimal quantity after the tax. The DWL for a negative externality is due to overproduction (Q3>Q5).
Externality DWL with no monopoly
MSB=MSC at Q3

26. 2. Explain the effect of a per-unit tax on the deadweight loss of a monopolist, who’s also facing a negative externality. Q3 (5.6%)
Question: 3. The graph below shows the marginal social cost (MSC), marginal private cost (MPC), marginal social benefit (MSB), demand (D), and marginal revenue (MR) curves for a monopoly. (e) Given the monopoly facing the negative externality, would the deadweight loss increase, decrease, or stay the same as a result of imposing the per-unit tax? Explain. Answer: The deadweight loss increases because the monopolist’s profit-maximizing quantity is equal to the socially optimal quantity before the tax and is less than the socially optimal quantity after the tax. The key concept is understanding that prior to the tax, the monopolist (and the market failure is typically due to underproduction) was producing the socially optimal quantity (Q3=Q3).
No DWL with monopoly and an externality
Market Q & Socially Optimal Q

27. 2. Explain the effect of a per-unit tax on the deadweight loss of a monopolist, who’s also facing a negative externality. Q3 (5.6%)
Question: 3. The graph below shows the marginal social cost (MSC), marginal private cost (MPC), marginal social benefit (MSB), demand (D), and marginal revenue (MR) curves for a monopoly. (e) Given the monopoly facing the negative externality, would the deadweight loss increase, decrease, or stay the same as a result of imposing the per-unit tax? Explain. Answer: The deadweight loss increases because the monopolist’s profit-maximizing quantity is equal to the socially optimal quantity before the tax and is less than the socially optimal quantity after the tax. The per-unit tax creates DWL because now the monopolist produces less (Q2<Q3). .
With the tax MSC=MPC + Tax
The new DWL with the Tax

28. 1. Using data in a table, identify that a firm operates with increasing returns to scale. (Q2 0.6%)
Question: 2. The table below shows the output a firm produces using different amounts of capital (K) and labor (L). The markets for capital and labor are perfectly competitive. The rental rate of capital is $75 per unit, and the wage rate is $200 per unit. In the short run, capital is fixed and labor is variable. (a) If the firm uses one unit of capital and one unit of labor, will it be operating with constant, increasing, or decreasing returns to scale? Explain using numbers from the table. Answer: The firm would be operating with increasing returns to scale and for explaining that doubling inputs will more than double output (output increases from 10 units to 50 units as a result of doubling labor and capital). Key – this is probably a topic that isn’t covered in depth and there is more emphasis on economies of scale. Returns to scale adjust both inputs in the production function, while economies of scale examines what happens to LRATC when quantity increases.
Labor
Output with K=1
Output with K=2 1 10 20 2 25 50 3 38 75

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