Version A

I. Multiple choice [2 pt each: 30 pts total]

(1)d. (2)c. (3)c. (4)d. (5)a. (6)b. (7)d. (8)a. (9)d. (10)b.
(11)f. (12)a. (13)e. (14)d. (15)c.

II. Problems

(1) [Monopoly price discrimination: 20 pts]

1. $9;
2. $3.50.

(2) [Predatory pricing: 50 pts]

1. $7;
2. $360;
3. $9;
4. $640;
5. $500;
6. No, because expected profit is less than start-up cost;
7. $80;
8. 60;
9. 60
10. $360;
11. [10 pts] By producing 60 units of output in Market A, Firm #1 is hiding its true marginal cost from Firm #2. Although Firm #1 makes no profit in Market A, by deterring entry it can enjoy monopoly profit in Market B.

Version B

I. Multiple choice [2 pt each: 30 pts total]

(1)a. (2)d. (3)d. (4)e. (5)b. (6)a. (7)a. (8)b. (9)c. (10)e.
(11)b. (12)f. (13)a. (14)d. (15)a.

II. Problems

(1) [Monopoly price discrimination: 20 pts]

1. $8;
2. $4.50.

(2) [Predatory pricing: 50 pts]

1. $7;
2. $360;
3. $9;
4. $640;
5. $500;
6. No, because expected profit is less than start-up cost;
7. $80;
8. 60;
9. 60
10. $360;
11. [10 pts] By producing 60 units of output in Market A, Firm #1 is hiding its true marginal cost from Firm #2. Although Firm #1 makes no profit in Market A, by deterring entry it can enjoy monopoly profit in Market B.

[end of answer key]