Regulation and Antitrust Policy (Econ 180)
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Course page:
www.drake.edu/cbpa/econ/boal/180
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I. Multiple choice [1 pt each: 12 pts total]
(1)c. (2)d. (3)c. (4)b. (5)b. (6)b. (7)c. (8)a. (9)b. (10)c.
(11)b. (12)c.
II. Problems
(1) [Monopoly, markup formula, Lerner index: 4 pts]
(2) [Structure-Conduct-Performance paradigm: 10 pts]
(3) [Game theory: 8 pts]
(4) [Measuring industry concentration: 18 pts]
(5) [Statutes: 10 pts]
(6) [Successive monopolies with fixed proportions: 26 pts]
Table of Results | (i) Successive monopolies |
(ii) Vertically intetgrated monopoly |
---|---|---|
Q = quantity of chips (and devices) | 200 | 400 |
PC = price of chips | $7 | |
Profit of upstream firm | $800 | |
PD = price of devices | $13 | $11 |
Profit of downstream firm | $400 | |
Total upstream + downstream profits | $1200 | $1600 |
(7) [Cases: 10 pts]
(8) [Market-segmenting price discrimination: 4 pts]
(9) [Theories of regulation: 6 pts]
(10) [Pricing with economies of scale: 20 pts]
(11) [Peak-load pricing: 20 pts]
(12) [Evaluating bids: 16 pts]
(13) [Airline deregulation: 16 pts]
(14) [Value of a statistical life: 6 pts]
(15) [Optimal stringency of regulation: 10 pts]
III. Challenge question [4 pts]
With one company, the market outcome is given as monopoly so the quantity is 4 thousand and the price is $40. With two companies, the market outcome is given as price competition, so the quantity is 7 thousand and the price is $25 (marginal cost). Deadweight loss from monopoly pricing is $22.5 thousand, and the cost saving from production by only one company is $20 thousand. Because the cost saving is less than the deadweight loss from monopoly pricing, two companies are better for society than one company.
I. Multiple choice [1 pt each: 12 pts total]
(1)b. (2)d. (3)b. (4)c. (5)a. (6)d. (7)b. (8)c. (9)c. (10)b.
(11)c. (12)b.
II. Problems
(1) [Monopoly, markup formula, Lerner index: 4 pts]
(2) [Structure-Conduct-Performance paradigm: 10 pts]
(3) [Game theory: 8 pts]
(4) [Measuring industry concentration: 18 pts]
(5) [Statutes: 10 pts]
(6) [Successive monopolies with fixed proportions: 26 pts]
Table of Results | (i) Successive monopolies |
(ii) Vertically intetgrated monopoly |
---|---|---|
Q = quantity of chips (and devices) | 300 | 600 |
PC = price of chips | $8 | |
Profit of upstream firm | $1800 | |
PD = price of devices | $14 | $11 |
Profit of downstream firm | $900 | |
Total upstream + downstream profits | $2700 | $3600 |
(7) [Cases: 10 pts]
(8) [Market-segmenting price discrimination: 4 pts]
(9) [Theories of regulation: 6 pts]
(10) [Pricing with economies of scale: 20 pts]
(11) [Peak-load pricing: 20 pts]
(12) [Evaluating bids: 16 pts]
(13) [Airline deregulation: 16 pts]
(14) [Value of a statistical life: 6 pts]
(15) [Optimal stringency of regulation: 10 pts]
III. Challenge question [4 pts]
With one company, the market outcome is given as monopoly so the quantity is 4 thousand and the price is $40. With two companies, the market outcome is given as price competition, so the quantity is 6 thousand and the price is $30 (marginal cost). Deadweight loss from monopoly pricing is $10 thousand, but the cost saving from production by only one company is $40 thousand. Because the cost saving exceeds the deadweight loss from monopoly pricing, one company is better for society than two companies.
[end of answer key]