Regulation and Antitrust Policy (Econ 180) Drake University, Spring 2011 William M. Boal Course page: www.drake.edu/cbpa/econ/boal/180 Blackboard: bb.drake.edu Email: william.boal@drake.edu

QUIZ 9 ANSWER KEY
Monopolization and Price Discrimination

### Version A

I. Multiple choice [2 pts each: 20 pts total]

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

II. Problems

(1) [Cases: 10 pts]

1. Standard Oil v. U.S. (1911).
2. U.S. v. U.S. Steel (1920).
3. MCI v. AT&T (1982).
4. Utah Pie v. Continental Baking (1967).
5. Berkey Photo v. Kodak (1979).

(2) [Monopoly price discrimination: 6 pts]

1. \$60.
2. \$48.

(3) [Predatory pricing: 33 pts]

1. \$8.
2. \$180.
3. \$10.
4. \$320.
5. \$250.
6. no.
7. \$40.
8. 30.
9. 30.
10. \$180.
11. By producing 30 units in Market A, Red Company avoids revealing its high cost to Green Company. So in Market B, Green Company stays out, allowing Red Company to enjoy monopoly profit.

(4) [Perfect price discrimination: 26 pts]

1. MR curve is a straight line with intercept = \$13 on price axis and intercept = 13 thousand on quantity axis.
2. \$9.
3. \$13.
4. \$7. (= price where MC=demand curve.)
5. 8 thousand, 12 thousand. (Single-price monopoly chooses quantity where MC=MR. Perfect price-discriminating monopoly chooses quantity where MC=demand curve.)
6. \$72 thousand, \$120 thousand.
7. \$24 thousand, \$48 thousand. (Compute total cost as either area under marginal cost curve, or average cost x quantity.)
8. \$48 thousand, \$72 thousand.
9. \$16 thousand, \$0 thousand.

III. Challenge question

This was not a simple case of predatory pricing. Profitable predatory pricing requires a period of predation (where profit is below normal or even negative) followed by a period of recoupment (where profit is above normal). But even today, the price of Internet Explorer remains zero. So Microsoft never enjoyed a period of recoupment.

### Version B

I. Multiple choice [2 pts each: 20 pts total]

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

II. Problems

(1) [Cases: 10 pts]

1. Utah Pie v. Continental Baking (1967).
2. Berkey Photo v. Kodak (1979).
3. Standard Oil v. U.S. (1911).
4. U.S. v. U.S. Steel (1920).
5. MCI v. AT&T (1982).

(2) [Monopoly price discrimination: 6 pts]

1. \$80.
2. \$66.

(3) [Predatory pricing: 33 pts]

1. \$4.
2. \$90.
3. \$5.
4. \$160.
5. \$125.
6. no.
7. \$20.
8. 30.
9. 30.
10. \$90.
11. By producing 30 units in Market A, Red Company avoids revealing its high cost to Green Company. So in Market B, Green Company stays out, allowing Red Company to enjoy monopoly profit.

(4) [Perfect price discrimination: 26 pts]

1. MR curve is a straight line with intercept = \$14 on price axis and intercept = 7 thousand on quantity axis.
2. \$10.
3. \$14.
4. \$8. (= price where MC=demand curve.)
5. 4 thousand, 6 thousand. (Single-price monopoly chooses quantity where MC=MR. Perfect price-discriminating monopoly chooses quantity where MC=demand curve.)
6. \$40 thousand, \$66 thousand.
7. \$16 thousand, \$30 thousand. (Compute total cost as either area under marginal cost curve, or average cost x quantity.)
8. \$24 thousand, \$36 thousand.
9. \$8 thousand, \$0 thousand.

III. Challenge question

Same as Version A.

[end of answer key]