1. Answer all parts (a)-(e).
(a) [10 marks] Explain why a monopoly firm providing gardening services is
more likely to succeed with setting non-linear prices than a monopoly firm
selling goods such as plant seeds. [Hint: Focus on the differences in the
characteristics for a consumer who buys a service as opposed to a take home
product such as seeds.]
(b) [10 marks] Outline the procedure for finding the profit maximizing
combinations of price and services offered to customers with unobservable
differences in tastes.
(c) [10 marks] How can such price discrimination improve the efficiency of
(d) [10 marks] Why do consumers who receive the least consumer surplus
purchase combinations of goods and services in which price that exceeds
(e) [10 marks] Why might some regard the resulting distribution of consumer
surplus as unfair?
2. Answer all parts (a) and (d).
(a) [15 marks] Suppose a monopolist sells petrol along the A12 in East Anglia
who must decide where to locate its filling stations. What factors determine
the price of petrol and how many filling stations the monopolist will choose to
(b) [10 marks] Now consider a monopolist selling a single good at just one outlet.
Describe the decision making problem of this monopolist when the monopolist
can choose the quantity and the quality of the good for sale.
(c) [10 points] How does the solution to the problem in (b) differ from the choice
of a social planner who maximizes the unweighted sum of consumer surplus
and firm profit? Will the firm choose a higher or lower quality than the
(d) [15 marks] Now suppose the monopolist in (b) can select to bring a range of
qualities to the market. Explain why the existence of a large consumer surplus
can lead the monopolist to produce fewer goods than the planner would like.
Explain why allowing the monopolist to charge a price above marginal cost
can lead to more goods than the planner would like.
3. [50 marks] What are the possible costs and benefits of so-called persuasive
advertising, i.e. advertising which conveys little or no information regarding price
offers, product characteristics or availability?
END OF SECTION A
4. Answer both parts (a) and (b).
(a) [25 marks] Describe a specific mechanism a regulator can use on monopolist
which has private information about its production costs that achieves an
efficient allocation. Explain the practical problems implementing such
(b) [25 marks] Describe the difficulties that arise when the regulator instead
decides to impose a rate of return regulatory policy.
5. Answer both parts (a) and (b).
Consider a policy maker who regulates the price of a natural monopoly.
(a) [10 marks] Why might average cost pricing be preferred over marginal cost
(b) [15 marks] Why might non-linear pricing be preferred over average cost
(c) [25 marks] Why might the policy maker decide instead to auction the
franchise rights to operate the monopoly. What issues arise in carrying out
franchise auctions for monopoly rights?
Would you be able to provide me with rough answers to this exam paper?
The exam is on industrial organizations
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