Quiz 10 Version A

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

Quiz 10 Version B

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

Test 10 Version A

(1) [Theories of regulation: 12 pts]

1. $10.
2. $5.
3. between $5 and $10.

(2) [Ramsey pricing: 10 pts]

1. product (iii).
2. 10 percent.

(3) [Pricing with economies of scale: 30 pts]

1. $2.
2. loss.
3. $60 million.
4. $0 million.
5. $8.
6. neither.
7. $0 million.
8. $6 million.
9. $2.
10. $30.

(3) [Multipart tariffs: 39 pts]

	(i)Two-part tariff	(ii) Declining-block tariff
a. How much would a typical big customer buy?	80 units	80 units
b. How much would a typical small customer buy?	0 units	20 units
c. Compute the firm's total revenue.	$340 million	$460 million.
d. Compute the firm's total cost (including the "fixed" cost).	$340 million	$460 million.
e. Does the firm make a profit, a loss, or just break even?	break even	break even
f. Compute the deadweight loss from this pricing policy.	$90 million	$10 million
g. Which of these tariffs do you favor? Why?	Favor tariff (ii) "Declining-block." Both tariffs ensure that the regulated firm breaks even, but the declining-block tariff causes less deadweight loss.

Critical thinking [9 pts]

• Let q₁ + q₂ = q*, where q* is a positive number.
  Now C(q₁) + C(q₂)
  = (100 + 10 q₁) + (100 + 10 q₂)
  = 200 + 10 (q₁ + q₂)
  = 200 + 10 q*
  > 100 + 10 q*
  = C(q*).
  Therefore this product does indeed have subadditive costs.

Test 10 Version B

(1) [Theories of regulation: 12 pts]

1. $30.
2. $20.
3. between $20 and $30.

(2) [Ramsey pricing: 10 pts]

1. product (i).
2. 8 percent.

(3) [Pricing with economies of scale: 30 pts]

1. $1.
2. loss.
3. $60 million.
4. $0 million.
5. $5.
6. neither.
7. $0 million.
8. $10 million.
9. $1.
10. $12.

(3) [Multipart tariffs: 39 pts]

	(i)Two-part tariff	(ii) Declining-block tariff
a. How much would a typical big customer buy?	100 units	100 units
b. How much would a typical small customer buy?	0 units	10 units
c. Compute the firm's total revenue.	$250 million	$290 million.
d. Compute the firm's total cost (including the "fixed" cost).	$250 million	$290 million.
e. Does the firm make a profit, a loss, or just break even?	break even	break even
f. Compute the deadweight loss from this pricing policy.	$40 million	$10 million
g. Which of these tariffs do you favor? Why?	Favor tariff (ii) "Declining-block." Both tariffs ensure that the regulated firm breaks even, but the declining-block tariff causes less deadweight loss.

Critical thinking [9 pts]

• Same as Version A.

[end of answer key]