Version A

I. Multiple choice [2 pt each: 22 pts total]

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

II. Problems

(1) [Measuring industry concentration: 21 pts]

1. Firm 1 has lower marginal cost;
2. 4CR = 80;
3. 4CR = 90;
4. Industry B;
5. HHI = 3000;
6. HHI = 2100;
7. Industry A.

(2) [Entry barriers and contestable markets: 26 pts]

1. $3;
2. 4 thousand;
3. L = 0.5;
4. $3;
5. $4;
6. loss;
7. $3 thousand;
8. 7 thousand;
9. $3;
10. profit;
11. $14 thousand;
12. $3;
13. L = 0.

(3) [Dominant-firm price leadership: 30 pts]

1. $1;
2. $6;
3. 4 million;
4. 2 million;
5. Residual demand has intercept at $6 and intersects market demand at P=$1 and Q = 10 million--slope is -0.5/1 million;
6. Residual marginal revenue has intercept at $6 with slope of -1/1 million;
7. 4 million;
8. $4;
9. 3 million;
10. L = 0.5.

Version B

I. Multiple choice [2 pt each: 22 pts total]

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

II. Problems

(1) [Measuring industry concentration: 21 pts]

1. Firm 1 has lower marginal cost;
2. 4CR = 95;
3. 4CR = 90;
4. Industry A;
5. HHI = 2300;
6. HHI = 4000;
7. Industry B.

(2) [Entry barriers and contestable markets: 26 pts]

1. $2;
2. 6 thousand;
3. L = 2/3 = 0.667;
4. $3;
5. $4;
6. loss;
7. $3 thousand;
8. 7 thousand;
9. $2;
10. profit;
11. $21 thousand;
12. $2;
13. L = 0.

(3) [Dominant-firm price leadership: 30 pts]

1. $3;
2. $7;
3. 3 million;
4. 2 million;
5. Residual demand has intercept at $7 and intersects market demand at P=$3 and Q = 8 million--slope is -0.5/1 million;
6. Residual marginal revenue has intercept at $7 with slope of -1/1 million;
7. 4 million;
8. $5;
9. 2 million;
10. L = 0.4.

[end of answer key]