Econ431_W17_Practice_FinalExam.pdf - Econ 431 Industrial...

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Econ 431 Industrial Organization Professor Fan Page 1 of 2 Practice Final Exam 1. [4 points] Publishers very often release the hardcover copies of a book before releasing the paperback version of the book. Explain the rationale behind such a practice. 2. [4 points] When firms in a Bertrand competition have capacity constraints (i.e., there exists an upper limit for how much a firm can produce), does the equilibrium price necessarily equal to marginal cost? Why or why not? 3. [4 points] Is it harder or easier to sustain collusion in a market where each firm produces a large set of differentiated products? Why? 4. [12 points] Consider a Hotelling model of product differentiation in which there is a continuum of consumers uniformly distributed on the interval [0, 1]. Two firms (Firm 1 and Firm 2) also locate on this interval. They produce identical products at zero marginal cost. Each consumer buys one unit of the product. A consumer obtains utility 2 v p t   if she buys at price p from a
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