1.Consider a monopolist that can practice first-degree price discrimination. Assume that marginal costs are constant and equal to 20, and that the demand curve faced by the monopolist is given by the following: p=100-Q. What is the monopolist's profit maximizing level of output?

a) 20,b) 40, c) 80, d) 100, e) Not enough information is given to answer the question.

2. Consider two sections of the daily newspaper: Sports (S) and Fashion (F). Suppose the following willingness to pay for Amy and Bing for the Sports and Fashion sections:

Suppose the marginal cost of producing and selling each section is MC=1. What is the profit-maximising pricing strategy among the following options?

a)    Price each section separately: P_S=5, P_F=5.

b)    Price each section separately: P_S=7, P_F=6.

c)    Sell as a bundle, at P_S+F=10.

d)    Sell as a bundle, at P_S+F=12.

e)    Sell as a bundle, at P_S+F=13.

3.  The demand for white paper is given by the following: p=100-0.5*Q. The marginal private cost of paper producers is given by the following: MPC=20+0.5Q. Residents who live near a paper producer suffer from pollution by the firm: there is an (marginal) external cost of paper production, MEC=Q. The socially optimal level of paper production is:

a) 0, b) 40, c) 60, d) 80, e) None of the above

4. The demand for white paper is given by the following: p=100-0.5*Q. The marginal private cost of paper producers is given by the following: MPC=20+0.5Q. Residents who live near a paper producer suffer from pollution by the firm: there is an (marginal) external cost of paper production, MEC=Q.  If the market for paper is competitive the deadweight loss to society is equal to:

a) 0, b) 800, c) 1600, d) 2800, e) 3200

5. The demand for white paper is given by the following: p=100-0.5*Q. The marginal private cost of paper producers is given by the following: MPC=20+0.5Q. Residents who live near a paper producer suffer from pollution by the firm: there is an (marginal) external cost of paper production, MEC=Q. A Pigouvian tax of _______ on paper production will ensure the efficient outcome is achieved.

a) 0, b) $20, c) $40, d) $60, e) $80

6. Two shops in a mall are deciding whether to hire a security guard. The security guard represents a public good in that the guard will provide deterrence to both stores.  The cost of hiring a guard is $16 in total or $8 per store if the cost is shared. The stores will benefit from the presence of a security guard by reducing theft by $10. The payoff matrix is given by:

In the Nash equilibrium:

a)    A guard will be hired.

b)    No guard is hired.

c)    One store hires the guard and both benefit from the presence of the guard.

d)    Neither player has a dominant strategy and there are no Nash equilibria.

e)    More information is required to answer the question.

7. Assume that the domestic demand for cars is given by Q_d=28000-2P and the domestic supply of cars is given by Q_s=P-2000. In the absence of international trade the quantity exchanged is ______ and total surplus is equal to _________:

a) 4,000; 12,000,000.

b) 4,000; 24,000,000.

c) 8,000; 24,000,000.

d) 8,000; 48,000,000.

e) 10,000; 50,000,000.

8. Assume that the domestic demand for cars is given by Q_d=28000-2P and the domestic supply of cars is given by Q_s=P-2000. Further assume that the world price for cars is given by $11000. In the presence of international trade the price in the domestic market is ______ and consumer surplus is equal to _________:

a) 10,000; 16,000,000.

b) 10,000; 12,000,000.

c) 11,000; 9,000,000.

d) 11,000; 25,000,000

e) None of the above.

9. Assume that the domestic demand for cars is given by Q_d=28000-2P and the domestic supply of cars is given by Q_s=P-2000. Further assume that the world price for cars is given by $11000. When international trade is possible, the change in total surplus is equal to ____ compared to the situation when there is no trade:

a) 0.

b) 1,500,000.

c) 3,000,000.

d) 10,000,000.

e) None of the above.

10. Firms invest in Research and Development (R&D) to increase productivity and develop new products. The demand for R&D can be represented as P = 2000 - 2Q (this reflects the marginal private benefit). The marginal cost of a unit of R&D is MC=300. However, there is an external benefit to society of the additional knowledge created, that can be represented as MEB = 100+0.5Q (marginal external benefit). If the amount of R&D is determined in a competitive market, the deadweight loss created by this externality is equal to

a) 0.

b) 52,200.

c) 63,750.

d) 86,250.

e) 91,875.