Version A

I. Multiple Choice

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

II. Problems

(1) [Effects of regulation on cost: 28 pts]

1. $3.
2. 9 thousand.
3. 5 thousand.
4. $8 thousand.
5. $20 thousand.
6. $10 thousand.
7. $18 thousand.

(2) [Effect of regulation on quality: 28 pts]

1. 4 million.
2. 5 million.
3. 0 million.
4. $8 million.
5. 5 million.
6. $2 million.
7. $10 million.

(3) [Maximum prices and exit restrictions: 20 pts]

1. $2 million.
2. $16 million.
3. $6.
4. $8 million.
5. $10 million.

III. Critical thinking

A "difference-in-differences" study compares two markets over time. For this "difference-in-differences" study, one would need to collect data on telephone rates in Iowa in 2004 and 2008, as well as data on telephone rates in another state that did not experience a change in regulation, in the same years. To estimate the effects of deregulation on telephone rates in Iowa, one would then calculate the change in telephone rates in Iowa, the change in telephone rates in the other state, and then subtract.

Version B

I. Multiple Choice

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

II. Problems

(1) [Effects of regulation on cost: 28 pts]

1. $2.
2. 10 thousand.
3. 8 thousand.
4. $2 thousand.
5. $16 thousand.
6. $8 thousand.
7. $10 thousand.

(2) [Effect of regulation on quality: 28 pts]

1. 6 million.
2. 7 million.
3. 0 million.
4. $18 million.
5. 5 million.
6. $8 million.
7. $26 million.

(3) [Maximum prices and exit restrictions: 20 pts]

1. $0.5 million.
2. $8 million.
3. $6.
4. $2 million.
5. $2.5 million.

III. Critical thinking

Save as version A.

[end of answer key]