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Exam 2014, Questions

Module

Advanced Industrial Economics (L13616)

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Academic year: 2013/2014
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University of Nottingham

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L13616 E1 turn over

The University of Nottingham

SCHOOL OF ECONOMICS

LEVEL 3 MODULE, SPRING SEMESTER 2013- 2014

L13616 INDUSTRIAL ORGANISATION

Time allowed TWO Hours THIRTY Minutes

Candidates may complete the front cover of their answer book and sign their desk card but must NOT write anything else until the start of the examination period is announced

Answer ALL questions from Section A and TWO questions from Section B All questions are given the same weight Where individual questions have separately itemised parts (e. (a), (b), etc.) each part is given the same weight unless otherwise stated.

Only silent, self contained calculators with a Single-Line Display or Dual-Line Display are permitted in this examination.

Dictionaries are not allowed with one exception. Those whose first language is not English may use a standard translation dictionary to translate between that language and English provided that neither language is the subject of this examination. Subject specific translation dictionaries are not permitted.

No electronic devices capable of storing and retrieving text, including electronic dictionaries, may be used.

DO NOT turn examination paper over until instructed to do so

ADDITIONAL MATERIAL:

INFORMATION FOR INVIGILATORS:

L13616 E1 turn over

SECTION A

Answer ALL of the following

1. Two firms produce a homogeneous good. Firm i’s cost function is c(qi) = 3qi 2 , where qi

is the quantity it sells. The firms face a market demand Q = 10 – p and compete by setting prices. Thus, firm i sells qi = 0 if it sets the higher price, qi = 10 – pi if it sets the lower price, and qi = ( 10 – pi)/2 if both firms set the same price.

a) What prices maximise combined profits? [25%]

b) Do the prices in a) constitute an equilibrium? [25%]

c) What are the lowest equilibrium prices? Explain. [25%]

d) What are the highest equilibrium prices? Explain. [25%]

  1. Consider the inspection game between a risk-neutral employer and a risk-neutral employee shown below (where the first entry in each cell is the employer’s payoff):

Employee Work Shirk Employer Inspect 10 , 20 – 10, 0 Not Inspect 20, 20 – 30, 30

a) Suppose the employer and employee make simultaneous choices. What is the equilibrium? [20%]

b) Suppose in addition to the payoffs in the table, the employer pays the employee a bonus of 10 if he inspects the employee and finds she has worked. How does the bonus affect the incentive to work and how does it affect the equilibrium? [40%]

c) Suppose in addition to the payoffs in the table, the employee pays a fine of 10 to the employer if he inspects the employee and finds she has shirked. How does the fine affect the incentive to work and how does it affect the equilibrium? [40%]

L13616 E1 END

  1. An upstream monopoly producer sets a price, w, for its good, which it can produce at a

cost of £10 per unit. A single downstream retailer chooses how many units of the good to buy from the producer, and sells these on to consumers. The retailer incurs no other costs. The price retailers receive is given by the downstream inverse demand function p = 9 0 – Q where Q is the total amount sold by retailers to consumers.

a) What is the derived demand facing the upstream monopolist? [25%]

b) What price, w, maximises the monopolist’s profit, and what are the resulting upstream profits, downstream profits, and consumer surplus? [25%]

c) Suppose the producer and retailer were to merge? What would be the profits of the merged firm and the consumer surplus? [25%]

d) If authorities prohibit a merger, explain how the same outcome as in part c)

could be obtained by contractual solutions such as a two-part tariff. [25%]

  1. What are the key features of Varian’s model of sales, and what is the structure of equilibrium in the model? In what sense does an increase in the number of uninformed consumers impose a negative externality on informed consumers?
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Exam 2014, Questions

Module: Advanced Industrial Economics (L13616)

5 Documents
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University: University of Nottingham

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L13616 E1
L13616 E1 turn over
The University of Nottingham
SCHOOL OF ECONOMICS
LEVEL 3 MODULE, SPRING SEMESTER 2013-2014
L13616 INDUSTRIAL ORGANISATION
Time allowed TWO Hours THIRTY Minutes
Candidates may complete the front cover of their answer book and sign their desk card but must NOT
write anything else until the start of the examination period is announced
Answer ALL questions from Section A and TWO questions from Section B
All questions are given the same weight
Where individual questions have separately itemised parts (e.g. (a), (b), etc.) each part is
given the same weight unless otherwise stated.
Only silent, self contained calculators with a Single-Line Display or Dual-Line Display are
permitted in this examination.
Dictionaries are not allowed with one exception. Those whose first language is not English
may use a standard translation dictionary to translate between that language and English
provided that neither language is the subject of this examination. Subject specific translation
dictionaries are not permitted.
No electronic devices capable of storing and retrieving text, including electronic dictionaries,
may be used.
DO NOT turn examination paper over until instructed to do so
ADDITIONAL MATERIAL:
INFORMATION FOR INVIGILATORS:

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