Name: _________________________________________________ (A)
Unit 3 Exam
Spring 2024 | Econ 301
Do not begin working until you are told to do so.
Exam Information
•
You have 75 minutes to complete this exam, including filling in the attached answer sheet.
•
The exam consists of 30 equally weighted multiple-choice questions.
•
Use of the following items is prohibited during the exam: calculators, smartwatches, phones,
tablets, computers, headphones, textbooks, and notes. Any student caught using one of
these items during the exam will receive an automatic grade of 0.
Exam Instructions
Cover Page
 Write your first and last name on the Name line of the exam cover page.
 Circle the discussion section that you are registered for.
Zhiyang Feng
Satyen Pandita
Sec. 321
Sec. 322
Sec. 324
Sec. 325
(12:05 – 12:55 pm)
(1:20 – 2:10 pm)
(11:00 – 11:50 am)
(8:50 – 9:40 am)
Sec. 323
Sec. 326
Sec. 327
Sec. 328
(2:25 – 3:15 pm)
(9:55 – 10:45 am)
(11:00 – 11:50 am)
(12:05 – 12:55 pm)
Answer Sheet
 Carefully remove the bubble sheet from the back of the exam.
 Write your first and last name in the Name box of the bubble sheet.
 Write your discussion section number in the Section No. box of the bubble sheet.
 Write and correctly bubble in your Student ID # in the Student ID box of the bubble sheet.
 Answer all the exam questions on the bubble sheet with a # 2 pencil.
When You Are Finished
 Turn in your bubble sheet to the bubble sheet pile.
 Turn in your exam to the pile associated with your discussion section number.
Page 1 of 15
Part 1: Traditional Multiple-Choice Questions
Choose the answer that best completes the statement or answers the question. Fill in the attached
bubble sheet appropriately.
1.
Suppose that firm A has some market power. In which of the following scenarios will firm A's
price be close to marginal cost.
a. Demand for firm A's product is very inelastic.
b. There are many other firms in the market with firm A.
c. Firm A holds a patent on the good they produce.
d. Firm A experiences economies of scale over the relevant range of output.
e. Firm A is successfully cooperating with the other firms in this market.
2. Which of the following is NOT considered a source of inefficiency in a monopolistically
competitive market?
a. The fact that price exceeds marginal cost
b. Excess capacity
c. The fact that long-run average cost is not minimized
d. Product diversity
e. all of the above
3. Bertrand duopolists, Firm A and Firm B, face inverse market demand 𝑃𝑃 = 60 − 𝑄𝑄. They sell
identical products, and both have a constant marginal cost of $30. The equilibrium price in
the market will be ______.
a. $60
b. $0
c. $15
d. $45
e. $30
Page 2 of 15
Figure 11.24.1
The figure below depicts a monopolist's demand curve, marginal revenue curve, and marginal cost
curve as well as their demand and marginal revenue curves when a tax of $t per unit is levied on
buyers, labelled DT and MRT respectively.
4. Refer to Figure 11.24.1. As a result of the tax, the monopolist's profit maximizing price will
______.
a. decrease by $4.
b. decrease by $3.
c. decrease by $2.67.
d. increase by $1.
e. Increase by $4.
Page 3 of 15
5. Hersheypark in Pennsylvania mentions the following offer on its Web page: "A military
discount is available at Hersheypark during the regular summer operating schedule. This
discount is available to active-duty military, reserves, retired military personnel, and
members of the National Guard." This offer is an example of ______ price discrimination.
a. first-degree
b. second-degree
c. inter-temporal
d. perfect
e. third-degree
6. In the long-run equilibrium of a monopolistically competitive market, economic profits are
______ due to ______.
a. positive; free entry into the industry.
b. zero; monopoly power.
c. zero; free entry into the industry.
d. positive; barriers to entry into the industry.
7. The U.S. government is the only buyer of U.S. military uniforms. As a result, they act a
monopsonist in that market. Their inverse demand for uniforms given by 𝑃𝑃𝑑𝑑 (𝑄𝑄) = 170 − 𝑄𝑄,
where 𝑃𝑃 is the price per uniform and 𝑄𝑄 is the number of uniforms. The inverse supply of
uniforms is 𝑃𝑃𝑠𝑠 (𝑄𝑄) = 20 + 2𝑄𝑄 and as a result, the U.S. government's marginal expenditure on
unforms is 𝑀𝑀𝑀𝑀(𝑄𝑄) = 20 + 4𝑄𝑄. To maximize profit, the U.S. government should purchase
______ uniforms at a price of ______ per uniform.
a. 50; $120
b. 50; $220
c. 30; $150
d. 30; $80
e. None of the above.
Page 4 of 15
Figure 12.24.1
A monopoly firm sells an identical product to two types of consumers, 1 and 2. The graph below
depicts the firm's marginal revenue curves for each market (MR1 and MR2), their total marginal
revenue curve (MRT), and their marginal cost curve (MC).
8. Refer to Figure 12.24.1. Suppose the firm can distinguish between the two types of
consumers and wants to engage in third-degree price discrimination. To maximize profit,
the firm should sell ______ units in market 1 and ______ units in market 2.
a. 14; 12
b. 10; 10
c. 16; 16
d. 12; 4
e. There is not enough information to determine this.
9. Relative to a buyer in a perfectly competitive market, a monopsonist will purchase ______
units of a good and will pay ______ per unit.
a. more; less
b. fewer; more
c. fewer; less
d. more; more
Page 5 of 15
10. Which of the following conditions is necessary to practice price discrimination?
I.
The firm must have market power.
II. The firm must be able to prevent arbitrage of its product.
III. The firm must face a perfectly elastic demand curve.
IV. The firm must operate in a perfectly competitive industry.
a.
I and II
b.
II, III, and IV
c.
I, II, and III
d.
III and IV
e.
I and III
11. A firm with market power serves two types of customers with different demands and has a
constant marginal cost of production, 𝑀𝑀𝑀𝑀. At any positive price, the consumer surplus
values for the two types of customers are related as 𝐶𝐶𝑆𝑆2 ≥ 𝐶𝐶𝑆𝑆1. Which of the following
statements about the firm's optimal two-part tariff is TRUE?
a. The firm sets the per unit price equal to 𝑀𝑀𝑀𝑀 and the entry fee equal to 𝐶𝐶𝑆𝑆2.
b. The per unit price is greater than 𝑀𝑀𝑀𝑀 and the entry fee equal to 𝐶𝐶𝑆𝑆1.
c. The firm sets the per unit price equal to 𝑀𝑀𝑀𝑀 and the entry fee equal to 𝐶𝐶𝑆𝑆1.
d. The per unit price is greater than 𝑀𝑀𝑀𝑀 and the entry fee equal to 𝐶𝐶𝑆𝑆2.
e. The firm sets the per unit price equal to 𝑀𝑀𝑀𝑀 and the entry fee equal to zero.
12. Bloom's Bakery is a monopoly seller of birthday cakes. Their marginal cost of producing a
birthday cake is $12. Bloom's market research reveals that the price elasticity of demand for
birthday cakes is constant, with a value of −3. If Bloom's wants to maximize profit from the
sale of birthday cakes, what price should they charge?
a.
b.
c.
d.
e.
𝑃𝑃 = $18
𝑃𝑃 = $12
𝑃𝑃 = $4
𝑃𝑃 = $36
𝑃𝑃 = $9
Page 6 of 15
Figure 11.24.2
13. Refer to Figure 11.24.2. The figure above shows the marginal value, marginal expenditure,
and average expenditure curves for a monopsonist. This monopsonist will generate
deadweight losses of ______.
a. $13.50
b. $27
c. $9
d. $18
e. $12
14. What is one difference between the Cournot and Stackelberg models?
a. In Cournot, both firms make output decisions simultaneously, and in Stackelberg,
one firm sets its output level first.
b. In Stackelberg, both firms make output decisions simultaneously, and in Cournot,
one firm sets its output level first.
c. In Cournot, a firm has the opportunity to react to its rival.
d. Profits are zero in Cournot and positive in Stackelberg.
e. Profits are positive in Cournot and zero in Stackelberg.
Page 7 of 15
Part 2: Multi-Part Questions
Consider each scenario below and fill in the answer to each associated multiple-choice question on
the attached bubble sheet.
Scenario 13.24.1 (question 15 & 16)
Two fudge makers, Fudge Factory and Chocolate Corner, compete in a Bertrand market structure
with differentiated products. Their demand curves are:
Fudge Factory:
Chocolate Corner:
𝑞𝑞𝐹𝐹 = 400 − 𝑃𝑃𝐹𝐹 + 2𝑃𝑃𝐶𝐶
𝑞𝑞𝐶𝐶 = 200 − 2𝑃𝑃𝐶𝐶 + 𝑃𝑃𝐹𝐹
Where 𝑃𝑃𝐹𝐹 is the price for fudge at Fudge Factory and 𝑃𝑃𝐶𝐶 is the price at Chocolate Corner. Both firms
have a constant marginal cost of 𝑀𝑀𝑀𝑀 = $40 and no fixed costs. Both firms set their own price and
take their competitor's price as given.
15. Determine Fudge Factory's profit as a function of 𝑃𝑃𝐹𝐹 and 𝑃𝑃𝐶𝐶 only.
a. 𝜋𝜋𝐹𝐹 = 𝑃𝑃𝐹𝐹 × (400 − 𝑃𝑃𝐹𝐹 + 2𝑃𝑃𝐶𝐶 )
b. 𝜋𝜋𝐹𝐹 = (𝑃𝑃𝐹𝐹 − 40) × (400 − 𝑃𝑃𝐹𝐹 + 2𝑃𝑃𝐶𝐶 )
c. 𝜋𝜋𝐹𝐹 = 𝑃𝑃𝐹𝐹 × (360 − 𝑃𝑃𝐹𝐹 + 2𝑃𝑃𝐶𝐶 )
d. 𝜋𝜋𝐹𝐹 = (𝑃𝑃𝐹𝐹 − 40) × (200 − 2𝑃𝑃𝐶𝐶 + 𝑃𝑃𝐹𝐹 )
e. 𝜋𝜋𝐹𝐹 = (𝑃𝑃𝐶𝐶 − 40) × (200 − 2𝑃𝑃𝐶𝐶 + 𝑃𝑃𝐹𝐹 )
16. Determine Fudge Factory's reaction curve.
a.
b.
c.
d.
e.
𝑃𝑃𝐹𝐹 = 180 + 𝑃𝑃𝐶𝐶
𝑃𝑃𝐹𝐹 = 200 + 𝑃𝑃𝐶𝐶
𝑃𝑃𝐹𝐹 = 400 + 2𝑃𝑃𝐶𝐶
𝑃𝑃𝐹𝐹 = 360 + 2𝑃𝑃𝐶𝐶
𝑃𝑃𝐹𝐹 = 220 + 𝑃𝑃𝐶𝐶
Page 8 of 15
Scenario 11.24.1 (question 17 & 18)
A monopoly producer of lava lamps has a marginal cost of 𝑀𝑀𝑀𝑀(𝑄𝑄) = 2𝑄𝑄. Inverse demand for their
lava lamps is given by 𝑃𝑃(𝑄𝑄) = 60 − 4𝑄𝑄.
17. The monopolist's marginal revenue is given by ______.
a.
b.
c.
d.
e.
𝑀𝑀𝑀𝑀(𝑄𝑄) = 60 − 2𝑄𝑄
𝑀𝑀𝑀𝑀(𝑄𝑄) = 60𝑄𝑄 − 4𝑄𝑄2
𝑀𝑀𝑀𝑀(𝑄𝑄) = 60 − 6𝑄𝑄
𝑀𝑀𝑀𝑀(𝑄𝑄) = 4𝑄𝑄
𝑀𝑀𝑀𝑀(𝑄𝑄) = 60 − 8𝑄𝑄
18. To maximize profit, the monopolist should produce ______ lava lamps and charge a price of
______ per lava lamp.
a. 6; $12
b. 10; $20
c. 6; $36
d. 10; $60
e. 15; $30
Page 9 of 15
Scenario 12.24.1 (question 19 & 20)
Consider a firm with market power selling custom cowboy boots. The market for these boots has an
inverse demand of 𝑃𝑃(𝑄𝑄) = 120 − 𝑄𝑄. The marginal cost of each pair of boots is $60 and the firm has
no fixed costs. The firm has decided to implement a block pricing scheme where they sell the first
𝑄𝑄1 pairs of boots at a price of 𝑃𝑃1 and an additional 𝑄𝑄2 − 𝑄𝑄1 pairs of boots at a lower price of 𝑃𝑃2.
19. Which of the following accurately represents the profit function under the described block
pricing scheme?
a. 𝜋𝜋 = 𝑄𝑄1 (120 − 𝑄𝑄1 ) + (𝑄𝑄2 − 𝑄𝑄1 )(120 − 𝑄𝑄2 )
b. 𝜋𝜋 = 𝑄𝑄1 (60 − 𝑄𝑄1 ) + 𝑄𝑄2 (60 − 𝑄𝑄2 )
c. 𝜋𝜋 = 𝑄𝑄1 (60 − 𝑄𝑄1 ) + (𝑄𝑄2 − 𝑄𝑄1 )(60 − 𝑄𝑄2 )
d. 𝜋𝜋 = 𝑄𝑄1 (120 − 𝑄𝑄1 ) + 𝑄𝑄2 (120 − 𝑄𝑄2 )
e. None of the above.
20. Under the optimal block pricing scheme, the firm will sell the first 𝑄𝑄1 pairs of boots at a price
of ______ and an additional 𝑄𝑄2 − 𝑄𝑄1 pairs of boots at a price of ______.
a. $100; $80
b. $108; $96
c. $20; $40
d. $80; $40
e. $40; $80
Page 10 of 15
Scenario 13.24.2 (question 21 & 22)
The market for widgets consists of many small firms and one dominant firm. The market demand for
widgets is given by 𝑄𝑄 𝑑𝑑 = 120 − 4𝑃𝑃. The dominant firm has a constant marginal cost of $8. All the
smaller fringe firms combined have a supply curve given by 𝑄𝑄𝑓𝑓𝑠𝑠 = 3𝑃𝑃 − 20.
The dominant firm sets the market price, and the fringe firms act as price takers. The dominant firm
allows the fringe firms to sell as many units as they want at the price set by the dominant firm. The
rest of the market is then supplied by the dominant firm.
21. The dominant firm's residual demand curve is given by ______.
a.
b.
c.
d.
e.
𝑄𝑄𝑟𝑟 = 140 − 7𝑃𝑃
𝑄𝑄𝑟𝑟 = 100 − 𝑃𝑃
𝑄𝑄𝑟𝑟 = 100 − 7𝑃𝑃
𝑄𝑄𝑟𝑟 = 112 − 4𝑃𝑃
𝑄𝑄𝑟𝑟 = 140 − 𝑃𝑃
22. To maximize profit, the dominant firm should produce ______ units and the competitive
fringe should produce ______ units.
a. 66; 4
b. 66; 112
c. 42; 4
d. 42; 22
e. 28; 28
Page 11 of 15
Scenario 11.24.2 (question 23 & 24)
Suppose a monopolist faces a demand curve given by 𝑃𝑃(𝑄𝑄) = 45 − 0.25𝑄𝑄, with an associated
marginal revenue curve of 𝑀𝑀𝑀𝑀(𝑄𝑄) = 45 − 0.5𝑄𝑄.
The monopolist has two plants. The first plant has a marginal cost of 𝑀𝑀𝐶𝐶1 (𝑄𝑄1 ) = 𝑄𝑄1 and the second
plant has a marginal cost of 𝑀𝑀𝐶𝐶2 (𝑄𝑄2 ) = 10 + 𝑄𝑄2. The total output in the market is 𝑄𝑄 = 𝑄𝑄1 + 𝑄𝑄2.
23. The multi-plant monopolist's total marginal cost curve is given by ______ if 𝑄𝑄 ≥ 10.
a. 𝑀𝑀𝐶𝐶𝑇𝑇 (𝑄𝑄) = 5 + 0.5𝑄𝑄
b. 𝑀𝑀𝐶𝐶𝑇𝑇 (𝑄𝑄) = 10 + 2𝑄𝑄
c. 𝑀𝑀𝐶𝐶𝑇𝑇 (𝑄𝑄) = 2𝑄𝑄 − 10
d. 𝑀𝑀𝐶𝐶𝑇𝑇 (𝑄𝑄) = 0.5𝑄𝑄 − 5
e. 𝑀𝑀𝐶𝐶𝑇𝑇 (𝑄𝑄) = 45 − 0.5𝑄𝑄
24. To maximize profit, the multi-plant monopolist should produce ______ units in plant 1 and
______ units in plant 2.
a. 40, 0
b. 20; 10
c. 30; 20
d. 25; 15
e. 35; 25
Page 12 of 15
Scenario 12.24.2 (question 25 & 26)
The figure below depicts a monopolist's marginal cost curve, demand curve, and marginal revenue
curve. For simplicity, assume that the firm has no fixed costs.
25. Suppose the monopolist depicted above sets a profit maximizing uniform price, their
producer surplus will be ______.
a. $36
b. $45
c. $54
d. $75
e. $25
26. Suppose the monopolist depicted above engages in first-degree price discrimination, their
producer surplus will be ______.
a. $25
b. $36
c. $45
d. $54
e. $75
Page 13 of 15
Scenario 13.24.3 (question 27 & 28)
Mystic Fuel and E-Storm are the only two producers of hydrogen fuel cells. The two firms are
Cournot oligopolists. The market inverse demand curve for hydrogen fuel cells is 𝑃𝑃 = 100 − 2𝑄𝑄,
where 𝑄𝑄 is the total number of hydrogen fuel cells produced by the two firms, 𝑄𝑄 = 𝑞𝑞𝑀𝑀 + 𝑞𝑞𝐸𝐸 . Mystic
Fuel has a marginal cost of $36 per hydrogen fuel cell, while E-Storm has a marginal cost of $20 per
hydrogen fuel cell. Assume that neither firm has any fixed costs.
E-Storm's reaction curve is 𝒒𝒒𝑬𝑬 = 𝟐𝟐𝟐𝟐 − 𝟎𝟎. 𝟓𝟓𝒒𝒒𝑴𝑴.
27. Determine Mystic Fuel's reaction curve.
a.
b.
c.
d.
e.
𝑞𝑞𝑀𝑀 = 20 − 0.5𝑞𝑞𝐸𝐸
𝑞𝑞𝑀𝑀 = 32 − 𝑞𝑞𝐸𝐸
𝑞𝑞𝑀𝑀 = 16 − 𝑞𝑞𝐸𝐸
𝑞𝑞𝑀𝑀 = 32 − 0.5𝑞𝑞𝐸𝐸
𝑞𝑞𝑀𝑀 = 16 − 0.5𝑞𝑞𝐸𝐸
28. In the Cournot equilibrium for this market, Mystic Fuel will produce ______ units and E-Storm
will produce ______ units.
a. 12; 14
b. 16; 12
c. 8; 16
d. 10; 10
e. None of the above.
Page 14 of 15
Scenario 12.24.3 (question 29 & 30)
Suppose that Double U, a local bar, charges a nightly entry fee, 𝐸𝐸, and a separate price for each
drink consumed, 𝑃𝑃.
Double U has estimated that all potential customers have an inverse demand for drinks described by
𝑃𝑃(𝑄𝑄) = 16 − 2𝑄𝑄. Where 𝑃𝑃 is the price per drink in dollars and 𝑄𝑄 is the number of drinks consumed.
Double U's marginal cost for a drink is $4 and they have no fixed costs.
29. To maximize profit, Double U should charge a price of ______ per drink and a nightly entry
fee of ______.
a.
b.
c.
d.
e.
𝑃𝑃 = $10; 𝐸𝐸 = $18
𝑃𝑃 = $4; 𝐸𝐸 = $72
𝑃𝑃 = $10; 𝐸𝐸 = $9
𝑃𝑃 = $4; 𝐸𝐸 = $36
𝑃𝑃 = $0; 𝐸𝐸 = $64
30. Under the above pricing strategy, the consumer surplus for each customer of Double U will
be ______ and Double U's profit per customer will be ______.
a. $9; $18
b. $0; $36
c. $0; $72
d. $18; $9
e. $0; $27
Page 15 of 15