AP® Microeconomics · Free response

A monopolistically competitive yoga studio in the short run and the long run

write it first, then score yourself point by point

Short free-response question · four-function calculator · 5 points · about 12 minutes

Start writingAll 18 questions

The question

Name: ______________________   Date: ____________   A monopolistically competitive yoga studio in the short run and the long run (5 points)

Saltmarsh Yoga (invented) is one of many yoga studios in a city. Each studio offers its own style of classes, and a new studio can open easily. Saltmarsh maximizes profit and is earning a positive economic profit in the short run.

  1. (A) Draw a correctly labeled graph for Saltmarsh Yoga showing demand, marginal revenue, marginal cost and average total cost, and show its profit-maximizing price and quantity, labeled P1 and Q1. [2 points]

  2. (B) Shade Saltmarsh Yoga's economic profit. [1 point]

  3. (C) Show on the graph how the demand for Saltmarsh Yoga's classes changes in the long run, and in your answer explain why. [1 point]

  4. (D) On a graph of Saltmarsh Yoga in long-run equilibrium, show its price and quantity, labeled P2 and Q2. [1 point]