# Exam 2 v1 with Answers - v1 Name UMID Section Chad Hogan...

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1. ___The speed of broadband internet cable services is dependent on the number of users of the network. If there are many users, then the cable network becomes congested and the service slows down. This suggests that: (a) customers will tend to avoid broadband internet cable services, and the cable network will be underutilized; (b) in order to encourage efficient use of the cable network, a customer should be offered a subsidy to compensate for the congestion costs she suffers; (c) in order to encourage efficient use of the cable network, a customer should have to pay for the congestion costs she imposes on others, in addition to the costs of providing the service to her house; (d) if customers pay any fees that are positively related to use of the cable network, it will result in inefficiently low provision of the service; (e) we wish to have as many people using the cable network as possible, since it is always optimal to increase the size of a network to take advantage of the network externalities. 2. ___The estimated demand function for ramen noodles is Q d = 5 Pop – 25 P – 10 Y + 2.5 P m where P is the price of the noodles, P m is the price of a box of macaroni-and-cheese, Y is median income (in thousands of dollars/month) and Pop is population (in hundreds of thousands). If the population is 2 million people, median income is \$3,000/month, the price of a box of macaroni-and-cheese is \$2 and the price of ramen noodles is \$1, then the: (a) elasticity of demand with respect to population is 2 and the elasticity of demand with respect to income is -0.6;
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Exam 2 v1 with Answers - v1 Name UMID Section Chad Hogan...

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