Regulation and Antitrust Policy (Econ 180)

Course page:
www.drake.edu/cbpa/econ/boal/180

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) [StructureConductPerformance 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 
P_{C} = price of chips  $7  
Profit of upstream firm  $800  
P_{D} = price of devices  $13  $11 
Profit of downstream firm  $400  
Total upstream + downstream profits  $1200  $1600 
(7) [Cases: 10 pts]
(8) [Marketsegmenting price discrimination: 4 pts]
(9) [Theories of regulation: 6 pts]
(10) [Pricing with economies of scale: 20 pts]
(11) [Peakload 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) [StructureConductPerformance 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 
P_{C} = price of chips  $8  
Profit of upstream firm  $1800  
P_{D} = price of devices  $14  $11 
Profit of downstream firm  $900  
Total upstream + downstream profits  $2700  $3600 
(7) [Cases: 10 pts]
(8) [Marketsegmenting price discrimination: 4 pts]
(9) [Theories of regulation: 6 pts]
(10) [Pricing with economies of scale: 20 pts]
(11) [Peakload 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]