Economics 101

Fall 2000

Answers to Midterm 3 - Fall 2000

1. B

2. A

3. B

4. A

5. B

6. C

7. C

8. E

9. D

10. E

11. D

12. E

13. E

14. C

15. C

16. C

17. B

Problem:

A. Q=40, P=$60

B. CS=$800 with monopoly. CS=$3200 with perfect competition

C. The good is underproduced and the outcome is not allocatively

efficient. This creates a deadweight loss. DWL=$800.

D. Potential Profits of the monopolist=$600. Thus, the firm will pay $600

for the license.

E. CS=$800+$600=$1400 with monopoly with auction proceeds given to

consumers. Thus the ranking is: 1. perfect competition, 2. monopoly with

auction proceeds given to consumers, 3. monopoly