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AP Microeconomics Unit 5 practice questions

Try 10 multiple-choice questions from Unit 5 here. Pick an answer to see why it's right or wrong, then take the timed test above for a full AP-style set.

  1. Question 1

    Both perfectly competitive firms and monopsonists maximize profit by hiring labor where marginal revenue product (MRP) equals marginal resource cost (MRC). However, they differ in the wage paid relative to MRP. Which statement describes this difference?

    Competitive firms pay a wage equal to MRP; monopsonists pay a wage less than MRP.

    Competitive firms pay a wage less than MRP; monopsonists pay a wage equal to MRP.

    Competitive firms pay a wage equal to MRP; monopsonists pay a wage more than MRP.

    Competitive firms pay a wage more than MRP; monopsonists pay a wage less than MRP.

    Competitive firms pay a wage more than MRP; monopsonists pay a wage equal to MRP.

    Show answer

    Answer: (A)

    Comparing the relationship between wage and marginal revenue product reveals the exploitation inherent in monopsony. In perfect competition, the wage equals MRP because the firm is a wage taker; in monopsony, the firm exercises market power to pay a wage lower than the MRP.

  2. Question 2

    In a perfectly competitive labor market, the firm perceives the labor supply curve as horizontal. In a monopsonistic market, the firm perceives the labor supply curve as upward-sloping. Which of the following describes the implication of this difference for the marginal resource cost (MRC)?

    For the competitive firm, MRC equals wage; for the monopsonist, MRC exceeds wage.

    For the competitive firm, MRC exceeds wage; for the monopsonist, MRC equals wage.

    For the competitive firm, MRC equals wage; for the monopsonist, MRC is below wage.

    For the competitive firm, MRC is below wage; for the monopsonist, MRC equals wage.

    For the competitive firm, MRC equals wage; for the monopsonist, MRC equals wage.

    Show answer

    Answer: (A)

    Connecting the supply curve shape to marginal costs explains the divergence. Because the monopsonist faces an upward-sloping supply curve, hiring an additional worker requires raising the wage for all existing workers, making the marginal cost higher than the wage itself.

  3. Question 3

    The standard monopsony model assumes the firm pays a single uniform wage to all workers. If a monopsonist could instead perfectly wage discriminate, how would the marginal resource cost (MRC) curve change relative to the labor supply curve?

    The MRC curve would become identical to the labor supply curve.

    The MRC curve would shift higher above the labor supply curve.

    The MRC curve would become horizontal at the market wage rate.

    The MRC curve would shift downward below the labor supply curve.

    The MRC curve would shift upward above the labor supply curve.

    Show answer

    Answer: (A)

    Analyzing the effect of the single-wage assumption reveals why MRC typically diverges from supply. If a firm can pay each worker their exact reservation wage without raising wages for others, the marginal cost of the next worker is simply that worker's wage, making MRC and Supply identical.

  4. Question 4

    A firm is the sole buyer of labor in a small town. It can hire 5 workers at a wage of 1010 per hour or 6 workers at a wage of 1212 per hour. What is the marginal factor cost of hiring the 6th worker?

    1010 per hour

    1212 per hour

    2222 per hour

    7272 per hour

    22 per hour

    Show answer

    Answer: (C)

    Calculating the change in total labor cost (6×12−5×10=72−50=226 \times 12 - 5 \times 10 = 72 - 50 = 22) reveals the marginal factor cost.

  5. Question 5

    A monopsonist faces the following labor supply schedule: 10 workers at 2020, 11 workers at 2121, and 12 workers at 2222. The marginal revenue product of the 11th worker is 3333 and the 12th worker is 2929. How many workers should the firm hire to maximize profit?

    10 workers

    11 workers

    12 workers

    13 workers

    Show answer

    Answer: (B)

    Comparing MRP (3333) to MFC (11×21−10×20=3111 \times 21 - 10 \times 20 = 31) shows hiring is profitable, while the 12th worker's MRP (2929) is less than their MFC (3333).

  6. Question 6

    A firm employs 20 workers at a wage of 1515 per hour. To hire a 21st worker, the firm must raise the wage to 1616 per hour for all employees. What is the marginal factor cost of the 21st worker?

    1616 per hour

    2020 per hour

    3131 per hour

    3636 per hour

    2121 per hour

    Show answer

    Answer: (D)

    Calculating the change in total cost (21×16−20×15=336−300=3621 \times 16 - 20 \times 15 = 336 - 300 = 36) yields the correct MFC.

  7. Question 7

    In a monopsonistic labor market, the profit-maximizing quantity of labor is 50 units and the wage is 1212. If this market were perfectly competitive with the same supply and demand, how would the equilibrium quantity and wage compare?

    Quantity < 50, Wage < 1212

    Quantity > 50, Wage > 1212

    Quantity = 50, Wage = 1212

    Quantity > 50, Wage < 1212

    Show answer

    Answer: (B)

    Competitive markets equate supply and demand (MRP), resulting in higher employment and wages than monopsonies.

  8. Question 8

    A firm finds that its marginal factor cost for the 10th worker is 5050, while the wage paid to that worker is 3030. What accounts for the 2020 difference between these two values?

    The cost of raising wages for all previous workers

    The diminishing marginal returns to labor inputs

    The marginal revenue product of the last worker

    The administrative cost of hiring new workers

    The worker's marginal revenue product exceeding the wage

    Show answer

    Answer: (A)

    The gap exists because hiring the marginal worker requires raising the wage for all infra-marginal workers.

  9. Question 9

    A monopsonist hires 8 workers at a wage of 1010 each. To hire a 9th worker, the wage rises to 1111. What is the total hourly wage bill for 9 workers?

    1111

    8888

    9090

    9999

    Show answer

    Answer: (D)

    Calculating the total cost involves multiplying the new quantity by the new wage (9×11=999 \times 11 = 99).

  10. Question 10

    A monopsonist hires 10 workers at a wage of 1515 per hour. The workers produce output that generates a total revenue of 300300 per hour. If labor is the only variable cost, what is the firm's hourly profit?

    150150

    285285

    300300

    450450

    5050

    Show answer

    Answer: (A)

    Profit is Total Revenue (300300) minus Total Cost (10×15=15010 \times 15 = 150), which equals 150150.

What's on the AP Microeconomics Unit 5 practice test

The standard version takes about 63 minutes and follows the timing and directions of the AP exam, sized to one unit:

  • 20 Multiple Choice Questions (23 minutes)
  • 1 FRQ – FRQ 1 – Long (20 minutes)
  • 1 FRQ – FRQ 2 – Short (20 minutes)

Questions are drawn from 906 multiple-choice questions and 52 FRQs written for Unit 5, Factor Markets.

Practice AP Microeconomics Unit 5 FRQs

Answer the unit's free-response questions one at a time and get a score on every part.

Review Unit 5 before you start

Other AP Microeconomics unit tests