431w2m2.pdf - Economics 431 Winter 2002 Second Midterm Exam...

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Economics 431 Winter 2002 Second Midterm Exam March 18, 2002 Print your name here ________________________________ Your UM ID number 1 ____________________________ Instructions: Do not open the exam until you are told to do so. Once the exam begins , check that you have all the pages. There should be 10 pages including this one. Once the exam begins , print your name in capital letters on top of each page to receive credit for it. This is a closed book, closed notes exam. You have 75 minutes to take the exam. Answer the questions in the space provided. To get credit on word questions, you should provide a brief explanation of your answer. Please write concisely and to the point. Feel free to use diagrams, but label them properly. If your answer involves doing math, show all work (this way you will get partial credit in case your ideas are correct but your math is not). If you run out of space on a particular question, you may use the back side of the same page. Clearly indicate on the front of the page that your answer is on the back; and on the back, give the number of question you are answering. Good Luck! 1 The underlined 8 digits on the face of your M-Card 1
1) (15 points) A local market for bottled water is served by 5 fi rms, whose marginal costs per bottle of water are constant and are given in the following table Firm 1 2 3 4 5 c , $ 0.80 0.70 0.85 0.65 0.85 . The market price for a bottle of water is $ 1 . 21 . Assume that you can use Cournot model with linear demand to describe how this market operates. a) (7 points) Which fi rm (or fi rms) has the largest market share? Explain. b) (8 points) Estimate the elasticity of demand for bottled water at market price. 2
2) (15 points) The fi rst digital phone book (national phone directory) was made by a fi rm called Pro CD and sold for $ 10,000 per copy in 1986. Since then, one other fi rm, American Business Information, started making the same product. Prices

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