Exam 3 - Mock Solution

Exam 3 - Mock Solution - ECON 425 100 PRACTICE QUESTIONS...

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ECON 425 - 100 P RACTICE Q UESTIONS FOR E XAM #3 Review Chapter 13, 14, 15, 16 & 18 1. The R&D devision of a monopoly producer of light bulbs develops a new kind of bulb that lasts forever but is otherwise indistinguishable from conventional light bulbs in terms of performance and cost of production. Could it ever be optimal for the monopoly to hide this discovery from the world and continue to produce light bulbs that have a finite lifetime? Briefly explain your answer and think about how your answer might differ depending on whether the monopolists sells or rents its light bulbs. In the case when the monopolist only rents its bulbs, it would always be optimal for the monopoly to market the everlasting bulbs, because by doing so it could drastically cut its production costs without reducing the rental rate charged for light services (consumers do not care about the durability of goods they are renting). If the monopolist only considers selling the bulbs, then it wouldn’t be optimal to market
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