ECN121A Industrial Organization Practice Final Exam
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ECN121A Industrial Organization Practice Final Exam
ECN121A INDUSTRIAL ORGANIZATION PRACTICE FINAL EXAM 100 MINUTES, 200 POINTS Please write your name, s
ECN121A (INDUSTRIAL ORGANIZATION) PRACTICE FINAL EXAM100 MINUTES, 200 POINTS Please write your name, student number, and section (if you know it) at the top of the exam.Only one of the answers to the 6 multiple choice questions below is correct. You can write on theback of pages, and there is an extra page at the end of the exam should you need it.Question 1: [5 points] Which of the following cost functions features economies of scale?(a)(b)(c)(d)C (q)C (q)C (q)C (q)= 10q2= q2 + q= 100 + q= q3Question 2: [5 points] Which of the following behaviors is consistent with price discrimination?(a)(b)(c)(d)A bar owner offering a happy hour during times when demand is lowWhole Foods offering a student discountA grocery store mailing people coupons that are tedious to redeemAll of the aboveQuestion 3: [5 points] Which of the following is true about monopoly pricing?(a)(b)(c)(d)A monopolist always prices in the elastic portion of demandA monopolist sets price equal to marginal revenueA monopolist always sets marginal revenue equal to average costNone of the aboveQuestion 4: [5 points] Which of the following is true about Cournot?(a)(b)(c)(d)In equilibrium, each firm wishes the other would produce more outputThe best response functions slope downwardsWe expect more firms to enter when the fixed cost of entry goes upHe was GermanQuestion 5: [5 points] Which of the following is true about Bertrand?(a)(b)(c)(d)When the products are differentiated, the best response functions slope upwardsIn equilibrium, each firm wishes the other would set a higher priceHe was FrenchAll of the above1Question 6: [5 points] Suppose there is a second price auction for a good, and 3 buyers withvaluations 10, 20, and 30. How much revenue should the auctioneer expect to earn if everyoneplays a weakly dominant strategy?(a)(b)(c)(d)302520102Question 7: [40 points] A monopolist of some good faces two types of consumers: “high typesâ€H that have a high willingness to pay and “low types†L that have a low willingness to pay. Theirrespective inverse demands are p H = 9 − q H and p L = 3 − 1 q L . The monopolist has zero costs of3production.(a) [20 points] If the monopolist can discriminate by charging high and low types differentprices, what will those prices be?(b) [10 points] If the monopolist cannot price discriminate, what single price will it set?(c) [10 points] At this single price you found in ‘b’, do the low types purchase, or has themonopolist decided that the price to get low types on board is too low and that it shouldstick to only serving high types at a price of p H you found in part ‘a’?3This page intentionally left blank.4Question 8: [45 points] Two firms, called 1 and 2, compete in a Cournot duopoly. Inverse demandfor the homogeneous product they produce is given by P = 12 − Q. Firm 1 has a marginal cost of1 and Firm 2 has a marginal cost of 2. Firms compete by choosing quantities.(a)(b)(c)(d)[20 points] Write down each firm’s profit function[10 points] Find each firm’s best response function. Are they symmetric? Why or why not?[10 points] Solve for the equilibrium output of each firm. Which firm produces more?[5 points] Calculate each firm’s profits. Which firm has higher profits?5This page intentionally left blank.6Question 9: [50 points] Consider a Hotelling line of length 1. There are two firms at each end ofthe line, and consumers live in between. The consumer at location x ∈ [0, 1] gets the followingutility from purchasing from firm i: uix = v − td − pi where d is the distance consumer x musttravel to firm i. Each firm produces an identical good at a marginal cost of c.(a) [10 points] Suppose prices are fixed at some ( p1 , p2 ). What is the location of the indifferentconsumer? This should depend upon p1 and p2 .(b) [5 points] Write down firm 1’s profit function.(c) [5 points] Find firm 1’s best response function.(d) [5 points] Write down firm 2’s prot function.(e) [5 points] Find firm 2’s best response function.(f) [10 points] Solve for the equilibrium prices charged by each firm. Where is the indifferentconsumer located?(g) [10 points] What restriction must we put on v relative to t and c such that the indifferentconsumer prefers to purchase rather than stay home and get a utility of 0 from watchingTV?7This page intentionally left blank.8Question 10: [35 points] Suppose you are the buyer of a good that you value at 1. It costs a seller0.5 to produce the good. There is another seller (a “potential entrantâ€) working hard in his garageto produce an identical good at less than 0.5 so he can enter the market, undercut the incumbentseller and sell to you.(a) [5 points] Suppose the entrant burns down his garage and gives up. The incumbent remains a monopolist and charges you a price of 0.99. Will you accept this price?(b) [15 points] Suppose the entrant succeeds in producing the good at a cost of 0. Can thereever be an equilibrium where you pay more than 0.5 for the good? (Think Bertrand competition with no product differentiation).(c) [15 points] Suppose before the entrant either burns down his garage or succeeds, the incumbent offers you an exclusive contract that forces you to buy from the incumbent at aprice p or face damages d. If it’s 50/50 whether the entrant burns or succeeds, would youaccept ( p, d) = (0.99, 0.5) (i.e. a locked in price of 0.99, and damages of 0.5 if you break thecontract and buy from the entrant)?9This page intentionally left blank.10
RUBRIC
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points: Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. GET THIS PROJECT NOW BY CLICKING ON THIS LINK TO PLACE THE ORDER
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