MSIN 0181 Mock Exam 2022

Time permitted: Two hours.

There are five (5) questions. All questions carry twenty (20)

marks. Please answer all questions.

Q1.

Freamon and Rawls are two firms in the sprocket industry in the UK. The market is a duopoly,

there are no other competitors and it is unlikely that there will be entry in the medium term. A

business journalist alleges that the two companies are acting as a cartel. You have been hired by

the Competition and Markets Authority to conduct a preliminary investigation into the question.

Your initial findings are used to develop a model of the firms in the industry. The model is laid out

below.

Both firms face the same cost and demand (so Qf = Qr )

Total Cost is given by TC = 30(q) and demand = 180-q1-q2

Demand is given by P = 180 - Q, where Q = qf + qr

You may therefore assume that

MCf= MCr = 30,

MRf = 180-2qf -qr

A) Calculate the profit maximising output (q), and price (P) for both firms (8)

B) Calculate the amount of profit made at that output. (4)

Suppose that if the industry were cartelised, then it could be represented as a hypothetical

monopolist. The marginal cost of production would be given by:

MC = 30 for marginal cost.

P = 180- Q for demand,

MR = 180 - 2Q for marginal revenue.

C) Calculate the profit maximising output and profit gained by the hypothetical

monopolist and give an opinion on whether it likely that this industry is cartelised.

Q2

In the QWERTY case, Paul David argues that there is a market failure in the non adoption of the

QWERTY standard by the market.

A) What does the term market failure mean in this context, and is Paul David

correct that there is a market failure in this case? (12 marks)

B) Liebowitz and Margolis argue that there is no market failure in the case. What

is their proposed explanation for the failure of DVORAK to gain traction in the

marketplace and what economic conditions do they think one should pay

attention to in standards battles? (8 marks)

Q3

A) Under what circumstances might a court have committed the cellophane

fallacy? (4 marks)

B) In the Google Shopping case, Google was found to have abused its dominant

position under Art 102 TFEU. On what grounds did the courts find Google

guilty? (6 marks)

C) In the Microsoft case, Microsoft was found to have committed an offence under

102 TFEU. What was the offence, and why is it a problem for Microsoft and not

for other competitors. (6 marks).

D) Suppose a firm can produce for a marginal cost of 2 and receive a price of 4.

What would the elasticity of demand for its product be? (4 marks)

Q4

A) Some industries have found that the best way to bring their product to market

is via a two sided market, where advertisers form the other side of the market.

Why will there still be a deadweight loss in this kind of market, and what ways

could the firms in the industry behave to reduce the deadweight loss? (8

marks)

B) Show with a diagram why first degree price discrimination eliminates the

deadweight loss in general. (6 marks)

C) What three conditions have to be satisfied before a company can engage in

price discrimination (6 marks)

Q5

A) Information products are generally considered non-rival goods. What does this

mean in terms of the cost structure of the producer? (3 marks)

B) Why will products with this kind of structure not get produced by competitive

markets? (4 marks)

C) Given the above two points, what can producers do to produce profitably in

this kind of market? (13 marks)