Name
Practice Quiz
Network Externalities
1.
A group of 13 consumers are considering whether to hook up to a new computer network.
Consumer 1 has Initial Value 1, consumer 2 has Initial Value 2, and so on up to consumer
13 who has Initial Value 13. Each consumer’s Buyer Value for belonging to the network is
equal to her Initial Value times the total number of consumers who hook up to the network.
What is the highest price at which 9 consumers could hook up to the market and all either
make a profit or break even?
(a)
$40
(b)
$42
(c)
$45
(d)
$47
(e)
$43
2.
Suppose that the cost of hooking up to the new computer network described in the previous
problem is $45 and that nobody will sign up for the network unless at the time he signs up,
his Buyer Value is at least $45. How many people will sign up?
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3.
Suppose that the price of hooking up to the network discussed in the previous two problems
is $45. In the group of 13 people, the 4 people with highest initial values are ”optimists” and
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 Fall '07
 Bergstrom
 Microeconomics, Externalities, Semiotics, Sign, initial value, $40, $42, $43

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