Eco 304k FAll 2010 MT3 White

Eco 304k FAll 2010 MT3 White - 1 Midterm 3 Economics...

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Midterm 3 Economics 304k-Professor Sibley December 3, 2010 WHITE VERSION Directions 1. There are six questions, of which you must answer 5, and only 5. 2. Do all work on the exam and observe the honor code. 3. Do not open the test until told to do so. 4. Put your name on the exam. 1
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1. What are the economic costs of monopoly? 2
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2. Suppose that a monopolist faces a demand curve given by P = 400 – 5Q and that the monopolist’s marginal costs is $50. a. What is the profit-maximizing output for the monopolist? b. Draw a diagram showing total surplus and deadweight loss, given your answer to a. Label clearly. c. Suppose that the monopolist has a fixed cost of $100. What is the effect of this on its profit-maximizing output? d. Calculate deadweight loss at the monopolist’s profit-maximizing output. 3
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3. Consider the following game. Player I can play either T or B and Player II can play L or R. In the table, the number to the left of the comma is Player I’s payoff and the number to the right of the comma is Player II’s payoff. Player II
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Eco 304k FAll 2010 MT3 White - 1 Midterm 3 Economics...

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