# 5 ECO questions

• 1. Consider the MBA program: a) What is the relationship between the program’s average costs and the number of students in the program? Graph it out, supposing the current average cost is \$10K per student/year with 30 full-time students. Do you think average cost will increase or decrease with more enrollment? Why? b) Is it potentially efficient to offer different concentrations to MBA/MAc students? Explain. c) Does the university price-discriminate? How?

2. Draw graphs for both a pure monopolist who sets output where MR=MC and for a monopolist who is able to perfectly price discriminate. You may, for the sake of simplicity, assume that MC is constant (flat) in both cases. Label the deadweight losses (if any) for both graphs, and answer the following questions: a) Which is more efficient, in the economic sense? b) Which is better for consumers? c) Which results in higher monopoly profits? d) Normative question – is price discrimination a bad thing?

3. Suppose Fred wants to open a pizza delivery service to compete with the current monopolist, Domino’s Pizza, in Springfield, NC. If Fred’s costs are higher than Domino’s, is it possible that he can still profit by setting a price above his marginal cost? How will Domino’s respond if Fred enters the market? Draw a graph to support your answer. Suppose Fred gives up and decides he can no longer compete with Domino’s at the current market price. Does Domino’s revert to monopoly pricing and output (MR=MC)? Why or why not? Is there any situation in which pure monopoly pricing could persist? Explain.

4. Consider a home seller and buyer in terms of a game in form. Suppose the buyer either makes an offer or not, then the seller can respond by rejecting the offer, accepting it, or asking for a higher price. Draw it out, and create your own set of payoffs (it can be in dollars). Is there a stable equilibrium?

5. Which market structure is the most efficient in a static sense? Which is most efficient in a dynamic sense? Explain your reasoning

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