ECON 180 - Regulation and Antitrust Policy
Drake University, Spring 2015
William M. Boal

Course page: www.cbpa.drake.edu/econ/boal/180
Blackboard: bb.drake.edu
Email: william.boal@drake.edu

ANSWER KEY: THEORIES OF MARKET STRUCTURE

Quiz 6 Version A

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

Quiz 6 Version B

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

Test 6 Version A

(1) [Measuring industry concentration: 30 pts]

  1. Firm 1.
  2. 4CR = 80.
  3. 4CR = 90.
  4. Industry B.
  5. HHI = 3000.
  6. HHI = 2100.
  7. Industry A.
  8. L = 0.3.
  9. L = 0.07.

(2) [Equilibrium entry: 25 pts]

  1. Use demand equation to find answers below.
  2. Profit per firm = (P-AC)×Q/n. Answers are below.
  3. PDV profit per firm = profit per firm / (0.10).
  4. 2 firms.
  5. 4 firms.

Number
of firms
Equilibrium
market quantity
Equilibrium
market price
Annual profit
per firm
PDV profit
per firm
1120$13$1440$1440
2160$9$640$6400
3180$7$360$3600
4192$5.80$230.40$2304
5200$5$160$1600

(3) [Entry barriers and contestable markets: 39 pts]

  1. min AC = $3.
  2. 7 million.
  3. 4/7.
  4. price = $4.
  5. AC = $7.
  6. loss.
  7. $9 million.
  8. 8 million.
  9. AC = $3.
  10. profit.
  11. $24 million.
  12. $3.
  13. L = 0 because P = MC.

Critical thinking [9 pts]

Test 6 Version B

(1) [Measuring industry concentration: 30 pts]

  1. Firm 6.
  2. 4CR = 90.
  3. 4CR = 80.
  4. Industry A.
  5. HHI = 2150.
  6. HHI = 2350.
  7. Industry B.
  8. L = 0.1075.
  9. L = 0.1175.

(2) [Equilibrium entry: 25 pts]

  1. Use demand equation to find answers below.
  2. Profit per firm = (P-AC)×Q/n. Answers are below.
  3. PDV profit per firm = profit per firm / (0.10).
  4. 3 firms.
  5. 4 firms.

Number
of firms
Equilibrium
market quantity
Equilibrium
market price
Annual profit
per firm
PDV profit
per firm
1120$9$720$7200
2160$7$320$3200
3180$6$180$1800
4192$5.40$115.20$1152
5200$5$80$800

(3) [Entry barriers and contestable markets: 39 pts]

  1. min AC = $3.
  2. 6 million.
  3. 4/7.
  4. price = $4.
  5. AC = $6.
  6. loss.
  7. $6 million.
  8. 7 million.
  9. AC = $3.
  10. profit.
  11. $21 million.
  12. $3.
  13. L = 0 because P = MC.

Critical thinking [9 pts]

[end of answer key]