2026 AP Microeconomics FRQ Answers (Unofficial)

Part (a)

Given that Ocel produces Sheets, which transport method gives Feram the higher profit?

Rail. In the Sheets column, Feram earns $50 million with Rail versus $40 million with Truck, so Rail is the more profitable strategy.

1 point: Rail, because $50 million > $40 million

Part (b)

Determine whether Ocel has a dominant strategy, citing payoff figures.

No. A dominant strategy would be Ocel's best choice no matter what Feram does, and Ocel does not have one.

If Feram picks Truck, Ocel earns more with Beams ($125 million) than Sheets ($95 million). If Feram picks Rail, Ocel earns more with Sheets ($75 million) than Beams ($25 million). Because Ocel's best choice flips with Feram's move, no single strategy dominates.

1 point: no dominant strategy, shown by Ocel's best reply flipping between Beams and Sheets

Part (c)

State the Nash equilibrium of the game, or say that none exists.

The single Nash equilibrium is (Rail, Sheets): Feram earns $50 million and Ocel earns $75 million.

Feram's Rail beats Truck in both columns ($50 > $40 and $30 > $20), so Rail is dominant for Feram. Given Rail, Ocel's best reply is Sheets ($75 million > $25 million). Neither firm can gain by switching, so (Rail, Sheets) is the equilibrium.

1 point: Feram Rail, Ocel Sheets ($50M, $75M)

Part (d)

Rebuild the payoff matrix after Feram's Rail transport cost rises by $20 million, with Truck cost unchanged.

Cut both of Feram's Rail payoffs by $20 million and leave everything else the same. Ocel's payoffs do not change, and the whole Truck row is unchanged.

New matrix. Truck and Sheets: Feram $40M, Ocel $95M. Truck and Beams: Feram $20M, Ocel $125M. Rail and Sheets: Feram $30M, Ocel $75M. Rail and Beams: Feram $10M, Ocel $25M.

1 point: correct matrix with each Feram Rail payoff reduced by $20M

Part (e)

Draw the merged monopolist Acier and mark its quantity, price, an ATC curve showing profit, and the deadweight loss.

Draw a monopoly graph with price and cost on the vertical axis and quantity on the horizontal axis. Show a downward-sloping demand curve, a marginal revenue curve below it, and MC and ATC curves.

i. Q1 sits directly below the point where MR = MC. ii. P1 is read up from Q1 to the demand curve, so P1 is above the MR = MC point. iii. Draw ATC so it lies below P1 at Q1, which puts price above average total cost and gives positive economic profit. iv. Shade the deadweight loss triangle bounded by the demand curve and the MC curve, between Q1 and the larger quantity where MC crosses demand.

4 points: Q1 at MR=MC; P1 on demand above Q1; ATC below P1 at Q1; DWL triangle shaded

Part (f)

After a lump-sum tax on Acier, will the short-run profit-maximizing price rise, fall, or stay the same?

Remain the same. A lump-sum tax is a fixed cost, so it does not touch marginal cost or marginal revenue.

The profit-maximizing quantity is still where MR = MC, which does not move, so Q1 and therefore P1 are unchanged. The tax raises ATC and lowers profit, but not the price.

1 point: remain the same, since a lump-sum tax is a fixed cost that leaves MR and MC unchanged

Part (a)

Name the market structure Protecto operates in, given it can sell any quantity at the going $60 price.

Perfect competition. Protecto is a price taker: it can sell as much as it wants at the fixed $60 market price, which is the defining feature of a perfectly competitive firm.

1 point: perfect competition (perfectly competitive)

Part (b)

Compute average variable cost at an output of 4 helmets, showing the steps.

AVC = $30. Variable cost equals total cost minus fixed cost: $200 - $80 = $120. Average variable cost is variable cost divided by quantity: $120 / 4 = $30.

1 point: AVC = $30 with work (VC = 200 - 80 = 120; 120/4)

Part (c)

Find Protecto's economic profit at 5 helmets, showing the steps.

Economic profit = $65. Total revenue is price times quantity: $60 x 5 = $300. Total cost at 5 helmets is $235. Profit = $300 - $235 = $65.

1 point: profit = $65 with work (TR $300 - TC $235)

Part (d)

State the profit-maximizing output and justify it with marginal reasoning and figures.

8 helmets. A competitive firm produces every unit whose marginal cost is at or below price, because price ($60) equals marginal revenue.

The 8th helmet has MC = $55, below the $60 price, so it adds $5 to profit. The 9th helmet has MC = $65, above the $60 price, so it would cut profit. Output stops at 8, where profit is highest at $105.

2 points: 1 for Q = 8, 1 for MR = $60 vs MC ($55 < 60, $65 > 60) reasoning

Part (e)

As the industry moves to long-run equilibrium from short-run positive profit, does market price rise, fall, or hold steady?

Decrease. Positive economic profit attracts new firms into the helmet market. Their entry increases market supply, shifts the supply curve right, and pushes price down.

Entry continues until price falls to minimum average total cost and economic profit is zero, which is the long-run equilibrium.

1 point: decrease, from entry raising supply until profit is zero

Part (a)

Sketch the domestic cucumber market and mark the $20 equilibrium price and its quantity Q1.

Draw a supply and demand graph with price in dollars per bushel on the vertical axis and quantity of cucumbers on the horizontal axis. Use an upward-sloping supply curve and a downward-sloping demand curve.

Mark where they cross: equilibrium price is $20 on the vertical axis and equilibrium quantity is Q1 on the horizontal axis, shown with dashed lines to each axis.

2 points: correctly labeled supply and demand; $20 and Q1 marked at the intersection

Part (b (i))

On the same graph, add the $10 world price and the quantity domestic producers supply at it, Q2.

Draw a horizontal world price line at $10, below the $20 equilibrium. Domestic producers supply where their supply curve meets $10, so Q2 sits to the left of Q1 (a smaller quantity than before).

Domestic consumers buy more than Q2 at $10, and the gap between domestic demand and Q2 is filled by imports.

1 point: world price line at $10 and Q2 where supply meets $10 (left of Q1)

Part (b (ii))

Does total economic surplus in the country rise, fall, or stay the same once free trade begins?

Increase. Opening to trade at a world price below the domestic price raises consumer surplus by more than it lowers producer surplus, so total surplus grows by the gains from trade.

1 point: increase

Part (c (i))

Show the domestic quantity supplied, Q3, once a $5 per-bushel tariff is added to imports.

The tariff raises the price in the domestic market from $10 to $15. Draw a line at $15 and mark Q3 where the supply curve meets $15. Q3 lies between Q2 and Q1: larger than the free-trade Q2 but still below the original Q1.

1 point: Q3 where supply meets $15, between Q2 and Q1

Part (c (ii))

Relative to free trade, does the tariff raise, lower, or leave domestic producer surplus unchanged?

Increase. The $5 tariff pushes the price domestic producers receive up from $10 to $15, and they raise output from Q2 to Q3. A higher price on more units means a larger producer surplus than under free trade.

1 point: increase, because price rises $10 to $15 and quantity supplied rises Q2 to Q3