ExamFeb15th20063 - Midterm Eco 200Y L0101/L0201 February...

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Midterm Eco 200Y L0101/L0201 February 15th 2006 Professor Stéphane Mechoulan Instructions This is a 50 minute exam graded out of 100. Make sure you write legibly. Above all, think before you write… Good luck! 1. (33 points) LeAnn’s Telecommunications firm has a monopoly in the local market. The elasticity of demand is 4 at every price (note: demand is not linear). LeAnn’s marginal costs are constant at $0.90. a. If LeAnn is maximizing profits, calculate the price charged. (10 points) b. If the local community institutes a $0.10 tax on each unit LeAnn sells, calculate the new price LeAnn will charge consumers. (15 points) What portion of the tax, if any, does LeAnn absorb? (8 points) 2. (33 points) Classic Programs has purchased distribution rights for two television programs that are ready for syndication. One series, The Detectives, was enormously popular during its prime time run and will command a large rental fee. The second series, Kittie and Alma, was a poor parody of a popular series. Kittie and Alma is not expected to be in demand for syndication. The managers at Classic Programs feel that there are only two legitimate bidders for the two series. One bidder is a large independent television station that is carried across the country by cable TV companies. The other bidder is a youth oriented pay TV network called Kidwork. The
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ExamFeb15th20063 - Midterm Eco 200Y L0101/L0201 February...

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