Managerial Economics 2022 Final Exam

(ECON90015_2022_SM1)
Exam starts Jun 20 at 10:00 AEST (Melbourne time)
Reading time: 30 minutes Writing time: 3 hours
Exam ends Jun 20 at 13:30 AEST (Melbourne time)
• Please submit your answers in one file with your Student ID legibly shown on the first page. (If you have difficulty putting your answers in one file, submitting multiple files is acceptable, but put your Student ID on the first page of each file)
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There are four pages in the exam (including this page).
There are six questions worth a total of 100 marks. (Marks are in brackets). Attempt all
questions.
Start your answer to each question on a new page. You don’t need to write the question out in your answer.
This is an open book exam. You are allowed any material loaded onto Canvas as part of the subject content, your own notes (printed, hand-written, and digital/electronic), textbooks, language dictionaries, calculators (any model), computers, electronic tablets, blank paper, pens, rulers, etc.
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ECON90015 2022 Exam
Page
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1. Suppose the market demand for a good is 𝑄 = 120 − 0.5𝑝. The monopolist (total) cost function is 𝐶 = 20𝑄.
   a. Find the single-price monopolist’s profit-maximizing output, price, and profit. (6 marks)
   b. Suppose the monopolist identifies two groups of customers that make up its demand. The first group, as a whole, has demand 𝑄1 = 60 − 0.1𝑝1. The second group, as whole, has demand 𝑄2 = 60 − 0.4𝑝2. The monopolist is able to charge a separate price to each group but the price of each unit for a group is the same for every unit. (There is also no two-part pricing). Find the price-discriminating monopolist’s profit-maximizing outputs, prices, and total monopoly profit. (6 marks)
   c. What rule does the monopolist use to decide which group pays the lower price for the good? Show that this rule is satisfied here. (6 marks)
2. Suppose the Australian government imposes a limit on the quantity – recall this is called a quota – of houses that can be produced that is less than the competitive market output.
   Using a supply and demand diagram, do welfare analysis to show how much better off or worse off Australian consumers, producers and Australia as whole are when the housing quota is imposed as compared to the competitive equilibrium. (Assume no externalities).
   You may find it helpful to assign letters (A, B, C, etc) to refer to areas on your diagram. (14 marks)
3. Because of better technology, the cost of producing televisions has fallen significantly this century.
   a. Using a supply and demand diagram, show the effect this has had on the equilibrium price and output in the television market. Assume the television market is perfectly competitive. (4 marks)
   b. Using the diagram, do welfare analysis to show how much better off or worse off consumers, producers and the nation as whole are when the production costs of televisions fall. (Assume no externalities). You may find it helpful to assign letters (A,
   B, C, etc) to refer to areas on your diagram. (12 marks)
   ECON90015 2022 Exam Page
   3
4. Suppose the market for solar panels in Australia is competitive.
   a. Using the (market) demand and supply diagram, show the competitive market equilibrium. Label the competitive market equilibrium price and quantity p C and QC , respectively. (2 marks)
   Solar panel production reduces the amount of pollution that would have been created by alternative energy sources, like coal.
   b. Using the (market) demand and supply diagram, again, show the efficient equilibrium output. Label the efficient equilibrium output Q
   e
   . (4 marks)
5. | GET AN EXPERT FOR YOUR ASSIGNMENT |
   c. Briefly explain how the government can use a corrective tax or subsidy (which?), to get to the efficient output Qe
   . On the (market) demand and supply
   diagram, show the price to the buyers, Pb
   , and the price to the sellers, Ps
   , as a
   consequence of this government intervention. (6 marks)
   d. Using the diagram, do welfare analysis to show how much better off or worse
   off Australian consumers, producers and Australia as whole are from the
   corrective tax or subsidy from part c) (compared to the competitive market
   equilibrium). You may find it helpful to assign letters (A, B, C, etc) to refer to
   areas on your diagram. Be careful about the welfare analysis of Australians as a
   whole – you will need to think carefully about this. (12 marks)
6. Suppose the music industry has large upfront costs of production but the cost of
   producing each additional unit of output (song) is zero.
   a. On one diagram, show the short run marginal cost curve and average cost
   curves (average fixed costs, average variable costs and average total cost) for a
   firm in such an industry. (4 marks)
   b. Give two reasons why monopolistic competition might be an appropriate
   model in this industry. (2 marks)
   c. Show the long-run monopolistic competition equilibrium for a firm in the digital
   industry. (6 marks)
   d. Show the (allocatively) efficient output on the diagram. Label it Qe
   . (4 marks)