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2019, Set 2, Question 1 · 9 points

2019 AP Microeconomics FRQ 1 (Set 2) answers

Drug patent monopoly, warehouse labor and entry

Graph a profitable monopoly with its output, price, average total cost and consumer surplus. Explain how higher drug demand changes the firm's demand for workers in a competitive labor market, and how a rival's entry after the patent ends changes producer and consumer surplus.

Skip to the worked answer and scoring (try the question first if you can)

This exam had three free-response questions in a 60 minute section (10 minutes of reading and 50 of writing), with about half the time suggested for Question 1 and the rest split evenly between Questions 2 and 3. The current exam has 3 free-response questions in 60 minutes. The skills these questions practice still count.

Lessons this question draws on

1 Read the question

The question is College Board's, from the 2019, Set 2 exam. It starts on page 2 of the PDF. College Board no longer posts this exam, so it opens from the copy of College Board's PDF that the Internet Archive saved on December 20, 2025.

Open Question 1 (PDF, page 2)

2 Write your answer

Answer each part the way you would on the exam, in full sentences, with your work shown. Your writing saves as you type.

3 Score it

Score your answer against College Board's scoring guidelines, one point at a time. Give yourself a point only when your answer says what the guideline asks for.

Scoring guidelines (PDF, page 2) What the exam readers saw (Chief Reader report)

4 Worked answer and scoring

Here is how a response that earns full credit could read, part by part, and what College Board's scoring guidelines look for, put in our own words. Open a part once you have written your own answer to it. The scoring guidelines PDF above is the official word on every point.

The patent makes Gigantic a monopoly, so the graph is the monopoly model: output where marginal revenue equals marginal cost, price from demand at that output, and ATC below that price because the firm earns a positive economic profit. Part (b) moves to the labor market, where the drug's price feeds into the value of each worker's output.

Part a 5 points

Model answer

Draw a downward-sloping demand curve D and a marginal revenue curve MR starting at the same price and falling twice as steeply. Add MC, falling at first and then rising, and a U-shaped curve labeled ATC with MC passing through its lowest point.

(i) QG is where MR crosses MC; drop a dashed line to the quantity axis.

(ii) PG is the price on D straight above QG; carry the dashed line up to D and across to the price axis.

(iii) ATC lies below D at QG, since Gigantic earns a positive economic profit.

(iv) Consumer surplus is the triangle under D and above PG, from the price axis out to QG. Shade all of it.

CSPGQGMCATCDMRCSQuantity of the drugPrice and costCSPGQGMCATCDMRCSQuantity of the drugPrice and cost

What earns each point

  1. A correctly labeled monopoly graph with downward-sloping D and MR, MR below D. The patent leaves Gigantic as the only seller, so it faces the market's downward-sloping demand, and selling one more unit means a lower price on all of them.
  2. QG where MR equals MC. Producing up to the point where the last unit adds as much to revenue as to cost gives the most profit. Where D meets MC is the allocatively efficient output, and the bottom of ATC is the productively efficient one; neither is the monopoly's choice.
  3. PG on the demand curve directly above QG, above the ATC curve. Buyers set the price for QG through demand. ATC under that price shows the positive profit.
  4. MC rising and passing through the lowest point of ATC. When the cost of one more unit is below the average, it pulls the average down; once it is above, it pulls the average up. So MC meets ATC exactly where ATC stops falling.
  5. Consumer surplus shaded completely: the area under D and above PG, from the price axis to QG. It is what buyers would have paid beyond PG for each unit they buy. Profit, total revenue and deadweight loss are other areas of the same graph.
Part b 2 points

Model answer

(i) Gigantic's demand for warehouse workers increases. A firm's demand for labor is the marginal revenue product of labor: the extra output a worker produces, valued at the revenue it brings in. Higher demand for the drug raises its price, so each unit a worker helps produce sells for more, and each worker's marginal revenue product rises.

(ii) The wage stays the same and Gigantic hires more workers. In a perfectly competitive labor market Gigantic is a wage taker: it faces a horizontal labor supply at the market wage. With a higher MRP, the market wage now equals MRP at a larger number of workers.

What earns each point

  1. Labor demand increases, because the higher price of the drug raises the marginal revenue product of labor. Demand for a factor comes from the product it helps make. Saying only that more workers are needed to make more output skips the link through MRP.
  2. The wage stays where it is, and Gigantic hires more workers. One firm hiring in a perfectly competitive labor market does not move the market wage; it hires where its new, higher MRP meets that wage.
Part c 2 points

Model answer

(i) Gigantic's producer surplus decreases. A rival selling an identical drug at a lower price takes buyers and pushes down the price Gigantic can charge, so it sells at a lower price and loses market share.

(ii) Consumer surplus increases. With a second seller the market price falls and the quantity bought rises. Buyers pay less for the units they already bought and gain surplus on the extra units, so the area under demand and above price grows.

What earns each point

  1. Gigantic's producer surplus decreases. Competition lowers the price Gigantic receives and the quantity it sells.
  2. Consumer surplus increases, because competition lowers the price and raises the quantity. Consumer surplus is the area under demand above price, out to the quantity bought; a lower price and a larger quantity both enlarge it.

Common mistakes

From what the exam readers reported seeing in 2019 students' answers, in our words:

Question, scoring guidelines and Chief Reader report: College Board, from the Internet Archive. The title, summary and worked answer are ours.