Regulation and Antitrust Policy (Econ 180)
Drake University, Spring 2007
William M. Boal

www.drake.edu/cbpa/econ/boal/180

william.boal@drake.edu

QUIZ 12 ANSWER KEY
Telecommunications

Version A

I. Multiple choice [2 pt each: 28 pts total]

(1)c. (2)a. (3)c. (4)c. (5)c. (6)c. (7)b. (8)b. (9)b. (10)d.
(11)c. (12)c. (13)b. (14)a.

II. Problems

(1) [Long-distance telecommunications technology: 16 pts]
Dates deployedTechnology
1890sOpen wire
1930sCoaxial cable
1940s and 1950sMicrowave
1970s and 1980sFiber-optic cable

(2) [Transformation of natural monopoly: 28 pts]

  1. 6 million;
  2. Yes, a ntural monopoly;
  3. 5 million;
  4. No, not a natural monopoly;
  5. $5;
  6. 15 million;
  7. 3 firms.

(3) [Multiproduct cost functions: 28 pts]

  1. $34;
  2. $15;
  3. $44;
  4. Yes, Acme enjoys economies of scope because the cost of producing X and Y together is less than the cost of producing them in separate firms:
    C(4,2) < C(4,0) + C(0,2);
  5. IC(QY) = $7, $10, $13, $16;
  6. AIC(QY) = $7, $5, $4.33, $4;
  7. Yes, Acme enjoys product-specific economies of scale because AIC(QY) is decreasing in QY.

Version B

I. Multiple choice [2 pt each: 28 pts total]

(1)b. (2)b. (3)a. (4)a. (5)a. (6)a. (7)a. (8)d. (9)d. (10)a.
(11)d. (12)a. (13)d. (14)c.

II. Problems

(1) [Long-distance telecommunications technology: 16 pts]
TechnologyDates deployed
Coaxial cable1930s
Fiber-optic cable1970s and 1980s
Microwave1940s and 1950s
Open wire1890s

(2) [Transformation of natural monopoly: 28 pts]

  1. 7 million;
  2. Yes, a ntural monopoly;
  3. 3 million;
  4. No, not a natural monopoly;
  5. $4;
  6. 12 million;
  7. 4 firms.

(3) [Multiproduct cost functions: 28 pts]

  1. $34;
  2. $23;
  3. $51;
  4. Yes, Acme enjoys economies of scope because the cost of producing X and Y together is less than the cost of producing them in separate firms:
    C(4,3) < C(4,0) + C(0,3);
  5. IC(QY) = $12, $19, $24, $29;
  6. AIC(QY) = $12, $9.50, $8, $7.25;
  7. Yes, Acme enjoys product-specific economies of scale because AIC(QY) is decreasing in QY.

[end of answer key]