Tackle the Test: Free-Response Questions

1. Question

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   Draw a correctly labeled graph showing a profit-making natural monopoly. On your graph, indicate each of the following:

   Rubric for FRQ 1 (9 points)

   

   1 point: The axes are correctly labeled.

   1 point: The demand curve is labeled and sloped downward.

   1 point: The marginal revenue curve is labeled, sloped downward, and below the demand curve.

   1 point: The average total cost curve is labeled and downward-sloping (not U-shaped!).

   1 point: The marginal cost curve is labeled and below the average total cost curve (it does not need to be flat).

   1 point: The profit-maximizing output, Q_M, is shown on the horizontal axis where MC = MR.

   1 point: The profit-maximizing price is found on the demand curve above the point where MC = MR.

   1 point: The monopoly profit area is correctly shaded and labeled.

   1 point: The regulated price is labeled on the vertical axis to the left of the point where the demand curve crosses the average total cost curve.

2. Question

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   Draw a correctly labeled graph of a natural monopoly. Use your graph to identify each of the following: