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(a) Calculate the marginal (physical) product of the third worker.
(b) Define the law of diminishing marginal returns and explain why it occurs.
(c) Diminishing marginal returns first occur with the hiring of which worker for the firm?
(d) What is the highest daily wage that the firm is willing to pay to hire the fifth worker?
(e) What will happen to the demand for labor if the market price of the product increases? Explain. © 2010 The College Board.
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-3- 2010 AP® MICROECONOMICS FREE-RESPONSE QUESTIONS (Form B)
3. (a) The table below gives the quantity of good X demanded and supplied at various prices.
Demanded (units) Quantity
Supplied (units) 30 1 3 20 3 3 10 4 3 Price (dollars) (i) Is the demand for good X relatively elastic, relatively inelastic, unit elastic, perfectly elastic, or
perfectly inelastic when the price decreases from $30 to $20 ? Explain.
(ii) Is the supply of good X relatively elastic, relatively inelastic, unit elastic, perfectly elastic, or perfectly
inelastic when the price decreases from $30 to $20 ? Explain.
(iii) If a per-unit tax is imposed on good X, how is the burden of the tax distributed between the buyers and
sellers of good X?
(b) Assume that the income elasticity of demand for good Y is –2. Using a correctly labeled graph of the market
for good Y, show the effect of a significant increase in income on the equilibrium price of good Y in the
short run. STOP
END OF EXAM © 2010 The College Board.
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