Question 1:

a. is the relationship between economies of scale and a natural monopoly?

b. What are network effects? How do they contribute to economies of scale?

c. Draw a graph that illustrates the dilemma of regulation for a natural monopoly. On the graph, show the:

(a) "socially optimal" price; (b) "fair-return" price; and (c) profit-maximizing price for the unregulated monopolist.

d. The demand for a monopoly is P = 80 -0.2QD. At what output level would the monopoly maximize total revenues? What is the firm's marginal revenue? What is the equilibrium price and quantity in the monopoly market when MC=20?

Question 2:

a. "Perfect competition or monopoly industries will tend to be one-price industries. Monopolistic competition, however, is a multiprice industry." Explain.

b. What are types of firms that exemplify monopolistic competition?

c. Assume that the short-run cost and demand data given in the table below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. Compute the marginal cost and marginal revenue of each unit of output and enter these figures in the table.

(i) At what output level and at what price will the firm produce in the short run? What will be the total profit?

(ii) What will happen to demand, price, and profit in the long run?

Question 3:

a. Consider the following payoff matrix in which the numbers indicate the profit in millions of dollars for a duopoly.

(i) Does this game have a dominant strategy equilibrium? If so, what is it?

(ii) Can you find a set of choices such that no firm would wish to change its mind given the choice of the other firm

b. Explain in nontechnical terms why oligopolistic prices may tend to be inflexible.

c. Why is there emphasis on non-price competition in oligopoly?

Question 4:

a. Consider the following supply and demand graph for a public good.

(i) What does point c represent?

(ii) What does the line segment ef at output Q3 represent?

(iii) At what output level is there an under allocation of resources to the production of this public good?

b. Evaluate: "Pollution is undesirable. Therefore, all pollution should be banned."

Question 5:

(a) What is the median-voter model and what are two implications from it?

(b) Evaluate: "A tax system in which those with higher incomes pay higher amounts of taxes is progressive."

(c) Answer the next three questions on the basis of the following data:

Taxable income                   Total tax

S5,000                                  50

10,000                                  500

15,000                                  1,000

20,000                                  2,000

25,000                                  4,000

30,000                                  8,000

(i) What will your average tax rate be if your taxable income is $25,000?

(ii) If your taxable income increases from $15,000 to $20,000, what will your marginal tax rate be?

(iii) What type of tax is represented by the tax schedule (regressive, proportional, or progressive)