ECON1210 Introductory Microeconomics

University of Hong Kong

Final Examination
Date: August 11, 2023, 14:30-16:30 (+ 15 minutes of grace period)

This version of the exam paper is for the following student only:

> > Ka-fu WONG (UID=9876543210) < <

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• For multiple choice questions with n choices, 1/(n − 1) point will be deducted for wrong answers,
such that picking an answer randomly will yield zero expected points. For example, when there are 5
choices, 1/4 (i.e., 0.25) point will be deducted for wrong answer.
• For simple short-answer questions, one point is awarded if the answer is correct, zero otherwise.
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otherwise. A full one point is awarded for a question only if all parts are correct. For example, when
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(= 0.2 × 3) point will be awarded. When all 4 parts are correct, 1 (= 0.2 × 4 + 0.2) will be awarded.

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human during the test. To prevent cheating, each student is given a unique version of the test. You will be
considered cheating if you share your exam paper with someone else during the exam period.

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1. My university ID number is [ Answer01 = 9876543210 ].

2. The equation below shows the government’s estimated total economic benefit of building n incinerators
in Utopia, in which n can only be integers:

Total benefit (million dollars): T B(n) = 63n − n2

Suppose the construction cost for each incinerator amounts 20 million dollars, and each incinerator is
estimated to impose environmental damage worth 9.5 million dollars to residents of Utopia. From the
society’s perspective, the government should build [ Answer02A = 17 ] incinerator(s) in Utopia,
and the corresponding total economic surplus to the society will be [ Answer02B = 280.50 ] million
dollars.

3. Chloe is considering whether to visit the Ocean Park which will last for 3 hours. Chloe is willing to
pay $X to go to the Ocean Park and the price of the Ocean Park ticket is $200. Instead of going to
the Ocean Park, Chloe could work as a part-time waitress in a restaurant for 3 hours and earn a total
of $400. She could also use the 3 hours to work as a student tutor for an hourly wage of $160. Chloe
enjoys the waitress job and tutoring job just enough that she is willing to pay for her additional MTR
fare of $50, to reach either job and do it for free. Chloe will choose to go to the Ocean Park if X is at
least [ Answer03 = 680 ].

4. Gary bought a ticket to a football game at $320 and Vivian bought a ticket to a concert at $350. Both
events will be held at the same time and the tickets are REFUNDABLE. Vivian finds the football
game to be interesting and offers to directly swap tickets with Gary. Suppose that Gary values the
game at $300 and the concert at $210. We would predict that [ Answer04 = A ].
A) Gary will swap the ticket with Vivian
B) Gary will not swap the ticket with Vivian
C) Gary is indifferent between swapping or not

5. John and Mary are the only people in a small island. In a week, John can either catch 28 kgs of fish
or pick 56 kgs of coconut. Mary can either catch 50 kgs of fish or pick 250 kgs of coconut. Suppose
John and Mary together decide to consume the two goods at a ratio of Fish:Coconut = 2:1, John and
Mary together can consume a maximum of [ Answer05 = 70.91 ] kg(s) of fish per week.

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 6. Clara, Kant, and Leo can produce hats and ties. The table below shows the number of hats and the
number of ties that can be produced in an hour by each of them:

Hats per hour Ties per hour

Clara 21.43 40.82
Kant 15.00 34.48
Leo 25.00 27.52

Assume each of them works ten hours per day. If they decide to jointly produce a total of 369 hats,
they can produce a maximum of [ Answer06 = 526.33 ] ties in a day. (Assume that production
quantity can take non-integer values.)

Please refer to the background information below to answer the following three questions.
In Utopia, there are two groups of foreign suppliers of seafood, A and B, with the following individual
supply relations respectively:

Supply A: P = 30 + 1.5Q
Supply B: P = 40 + 2.5Q

The market demand is

P = 98 − 0.7Q

where P is price per kg of imported seafood (in dollars), Q is quantity of imported seafood in thousand kgs.
7. Without government intervention, we can compute that the market equilibrium price is [ Answer07A
= 70.53 ] dollars per kg, and the market equilibrium quantity is [ Answer07B = 39.24 ] thousand
kgs.
8. Due to news on seafood contamination in foreign countries, the central planner completely bans
Utopian import of seafood. We will expect a minimum welfare loss of [ Answer08 = 1272.98 ]
thousand dollars when compared to the market without intervention.
9. Suppose the central planner wants to achieve the same quantity (0 unit) of seafood import in Utopia
using taxation or subsidy. The central planner should impose a [ Answer09A = A ] (A. tax, B.
subsidy) of [ Answer09B = 68.00 ] dollars per kg.

10. Suppose the supply curve of widgets is given by the function Q = a + bP . Suppose after an increase
in demand, the price of widgets increases by 9% and the quantity increases by 5%. Given this
information, we conclude [ Answer10 = A ].
A) a>0
B) a<0
C) a=0
D) not enough information to say anything about the value of a

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Please refer to the background information below to answer the following two questions.
The demand curve for product A takes the form of:

QA = 188000 − 3.1PA + cPB

where PA is the price of product A, and PB is the price of product B. At one equilibrium, QA = 158.72,
PB = 20, and the cross-price elasticity of demand for product A with respect to the price of product B is
−4.8.
11. Then we can infer that c =[ Answer11 = -38.09 ] at the equilibrium.
12. We can further compute that PA = [ Answer12 = 60348.20 ] at the equilibrium.

13. After a new per-unit subsidy of $3.1 is introduced on electric sockets, we observe that the price of
electric sockets paid by consumers decreases by $2.5. What can we conclude?
A) Demand for electric sockets is relatively more price elastic than supply at the original equilibrium.
B) Demand for electric sockets is relatively less price elastic than supply at the original equilibrium.
C) The price elasticity of demand for electric sockets is the same as the price elasticity of supply at
the original equilibrium.
D) We cannot draw any conclusion on demand and supply elasticities of electric sockets at the
original equilibrium.
[ Answer13 = B ]

Please refer to the background information below to answer the following two questions.
Suppose the Financial Secretary of Utopia wants our help designing a per-pack tax to discourage smoking.
Given a price P measured in Utopian dollars per pack and Q is number of cigarette packs, the demand and
supply for cigarette (packs per year) are given by the equations:

Demand: Q = 50000 − 250P

Supply: Q = 1000P − 19000

Before the tax, the equilibrium price is P = 55.2 dollars per pack and the equilibrium quantity is Q = 36200
packs.
14. Suppose the aim is to reduce cigarette consumption by 9050 packs. We should suggest a per-pack tax
of [ Answer14 = 45.25 ] dollars.
15. Suppose instead the Financial Secretary would like to use tax to generate a tax revenue of at least
600000 Utopian dollars per year. The lowest tax to achieve this tax revenue is [ Answer15 = 18.46
] dollars per pack.

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Please refer to the background information below to answer the following two questions.
Consider the following supply and demand schedule of potato chips.

Price ($ per unit) Quantity Demanded (units) Quantity Supplied (units)

40 750 525
42 720 540
44 690 555
46 660 570
48 630 585
50 600 600
52 570 615
54 540 630
56 510 645
58 480 660
60 450 675
62 420 690
64 390 705
66 360 720
68 330 735

16. Suppose initially the potato chips market is in an unregulated equilibrium. If the government imposes
a tax of $12 for each unit of potato chips sold, at the new equilibrium, the price received by the sellers
will be $[ Answer16 = 42 ] per unit.
17. Consequently, the tax revenue is $[ Answer17 = 6480 ].

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Please refer to the background information below to answer the following six questions.
The farmers of Utopia have complained to the government that the grain price is too low. The administration
promises to consider three policies proposed by the farmer representatives: (1) a price guarantee programme
with government purchase, (2) a grain subsidy, and (3) a price floor for grain. The market demand and
supply curves of grain are given by the following equations:

Demand: Q = 230 − 2P
Supply: Q = 3P − 18

where P is grain price in terms of dollars per kg and Q is quantity of grain in terms of million kgs. At
unregulated market equilibrium, grain price is 49.6 dollars per kg and grain transaction is 130.8 million kgs.
18. Consider the price guarantee programme with government purchase, where the government promises
grain suppliers that it would enter the market to buy grain at 67 dollars per kg whenever there is
insufficient demand. Assume the government has enough storage capacity to buy up all excess grain
supply in the market, and storage costs 10 dollars per kg. The government will need to buy up [
Answer18 = 87.00 ] million kgs of grain in the market.
19. Continue with the previous question. The producer surplus will be [ Answer19A = 5581.50 ]
million dollars. The total cost for the government (including storage cost) will be [ Answer19B =
6699.00 ] million dollars.
20. Consider the grain subsidy policy instead. In order to raise the effective grain price to suppliers to
the level of 67 dollars per kg, the government needs to impose a subsidy of [ Answer20 = 43.50 ]
dollars per kg of grain.
21. Continue with the previous question. The producer surplus will be [ Answer21A = 5581.50 ]
million dollars. The total cost for the government will be [ Answer21B = 7960.50 ] million dollars.
22. Consider the grain price floor at 67 dollars per kg instead. At the proposed price floor, consumer surplus
will be [ Answer22A = 2304.00 ] million dollars, and producer surplus will be [ Answer22B =
4320.00 ] million dollars. (Assume production are automatically allocated to grain suppliers with
the lowest cost of production).
23. Knowing that, because of national security concern, the government is determined to raise the effective
price to grain suppliers to 67 dollars per kg through either the government purchase, grain subsidy
or price floor policy considered above. The grain suppliers are actively thinking of lobbying the
government for a policy they favor. The grain suppliers as a group will be willing to spend up to [
Answer23 = 1261.50 ] million dollars to lobby the government to adopt the policy they favor.

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 24. Consider the following demand and supply schedule of chocolate:

Price ($ per unit) Quantity Demanded (units) Quantity Supplied (units)

40 240 80
45 220 100
50 200 120
55 180 140
60 160 160
65 140 180
70 120 200
75 100 220
80 80 240
85 60 260
90 40 280
95 20 300

Suppose initially the chocolate market is in an unregulated equilibrium. If the government sets a price
ceiling at $85, the quantity transacted will be [ Answer24A = 160 ] units. If the government sets a price
ceiling at $55, the quantity transacted will be [ Answer24B = 140 ] units.

Please refer to the background information below to answer the following two questions.
The following figure shows the market for candies in a village, where a = 90, c = 50, d = 28, e = 6, f = 160.
Suppose the government imposes a price ceiling at 28 dollars. (Note, both demand and supply are linear.)

25. If there is a competitive market for bribery to determine candy allocation, the equilibrium bribe for
the right to purchase one pack of candies will be [ Answer25A = 42.00 ] dollars. Correspondingly,
the sum of consumer surplus and producer surplus in the candy market will be [ Answer25B =
1680.00 ] dollars.
26. Consider an alternative way of allocating candies by waiting-in-line. Assume the per-unit cost of
waiting time is same for all buyers. The equilibrium total value of wasted time due to the price
ceiling will be [ Answer26A = 3360.00 ] dollars. Correspondingly, the sum of consumer surplus
and producer surplus in the candy market will be [ Answer26B = 1680.00 ] dollars.

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Please refer to the background information below to answer the following two questions.
The residents of Utopia have complained to the government that the price of gasoline is too high. In
response, the government of Utopia promises to consider a price ceiling on crude oil (not on gasoline). The
market supply and demand curves of gasoline are given by the following equations.

Demand: Q = 20 − P million gallons per year

Supply: Q = 3.4P − 6 million gallons per year

where P is gasoline price in dollars per gallon.

27. Suppose the government of Utopia imposes an effective price ceiling on crude oil: 2.95 dollars per
unit of crude oil. Crude oil is a major input for producing gasoline, and each gallon of gasoline is
produced with one unit of crude oil.
The supply curve of crude oil is given by the equation (Poil is crude oil price in dollars per unit)

Qoil = 38.2Poil million units per year

The government expects that after imposing the proposed price ceiling on crude oil, 10% of the crude
oil traded will be used to produce gasoline. After the policy is in place, we expect gasoline stations
will sell gasoline for [ Answer27A = 8.73 ] dollars per gallon, and the market quantity will be [
Answer27B = 11.27 ] million gallons per year.
28. Given the price ceiling on crude oil, we expect that the consumer surplus of gasoline consumption will
be [ Answer28 = 63.50 ] million dollars per year.

Please refer to the background information below to answer the following two questions.
Two power generation firms, X and Y, can have the choice to reduce their smoke emissions with a cost.
The marginal costs of smoke reduction of the two firms are different but are both increasing in the quantity
of smoke reduction, as described by the following two equations:

Firm X: M CX = 862 + 2.4RX dollars per day

Firm Y: M CY = 520 + 2.2RY dollars per day

where RX and RY are the quantity of smoke reductions (in tons) of the two firms respectively. When
pollution is not regulated, the two profit-maximizing firms will spend no effort in smoke reduction, and
hence Firm X generates 274 tons of smoke and Firm Y generates 280 tons of smoke.
Now, the government would like to reduce the overall smoke emissions by half by issuing tradable pollution
permits of 277 tons, with 137 tons allocated to Firm X and 140 tons allocated to Firm Y free of charge.
Under the pollution permit scheme, a firm will be allowed to generate q tons of smoke only if the firm has
pollution permits of q tons. Suppose these permits are perfectly divisible and the negotiation cost to reach
an agreement between the two firms is zero.
29. We would expect Firm X to produce [ Answer29 = 215.87 ] tons of smoke eventually.
30. We would expect Firm Y to produce [ Answer30 = 61.13 ] tons of smoke eventually.

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Please refer to the background information below to answer the following five questions.
The market demand and supply of university education in Utopia are given by the following equations:

Demand: Q = 440 − 2P thousand programmes per year

Supply: Q = 1.2P − 58 thousand programmes per year

where P is the price per programme in thousand dollars. Because of the positive externalities associated
with education (better health outcomes for the society, lower crime rates, a cleaner environment, etc.), the
social marginal benefit (SM B in thousand dollars) is given by the following equation:

Q = 440 − 0.7 × SM B thousand programmes per year

and there are no negative externalities associated with education.

The unregulated market equilibrium level of education is 128.75 thousand programmes per year. Note: (1
thousand) × (1 thousand) = 1 million.
31. The total economic welfare to the society from the unregulated market equilibrium level of university
education is [ Answer31 = 55958.35 ] million dollars per year.
32. Suppose the Utopian government decides to use subsidy policy to provide free university education to
every citizen in Utopia (that is, the price to buyers is zero). The government should implement a
per-unit subsidy of [ Answer32 = 415.00 ] thousand dollars per programme.
33. The total amount of external benefit accrued corresponding to the above publicly-subsidized education
policy will be [ Answer33 = 89885.71 ] million dollars per year.
34. The total economic welfare to the society corresponding to the above publicly-subsidized education
policy will be [ Answer34 = 36352.38 ] million dollars per year.
35. The government can induce the socially efficient level of university education by implementing a
per-unit subsidy of [ Answer35 = 170.37 ] thousand dollars per programme.

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Please refer to the background information below to answer the following six questions.
In Utopia, two manufacturing firms, X and Y, have access to seven different processes for their production.
These processes yield different amount of profit (in million dollars) and generate different amount of solid
waste pollution (in tons). Each ton of solid waste pollution causes environmental damage worth 995 million
dollars to Utopian residents. Initially there is no regulation on the solid waste pollution by the firms.

Profit to Firm X Profit to Firm Y

Process (daily waste) (million dollars) (million dollars)
A (0 ton) 1470 1400
B (1 ton) 2820 2690
C (2 tons) 4100 3950
D (3 tons) 5300 5060
E (4 tons) 6380 6040
F (5 tons) 7110 6760
G (6 tons) 7790 7420

36. If solid waste pollution generated by the two firms is unregulated, and negotiation between the
firms and their victims is impossible, the total amount of solid waste pollution generated will be [
Answer36 = 12 ] ton(s) per day.
37. Suppose the government controls the solid waste pollution by selling pollution permit. One pollution
permit allows the holder to generate one ton of solid waste pollution per day. Suppose the government
sets the permit price at 1155 million dollars per permit, and allows the firms to buy as many permits
as they want to. Firm X will choose process [ Answer37A = D ] and Firm Y will choose process [
Answer37B = C ].
38. Continue from the previous question. The government can collect a daily revenue of [ Answer38 =
5775.00 ] million dollars from selling pollution permits.
39. Suppose the government has instead decided to cut total solid waste pollution to two-third of the
unregulated level. The permit price should be set to be greater than [ Answer39A = 730.00 ]
million dollars per permit and less than [ Answer39B = 980.00 ] million dollars per permit.
40. The socially efficient level of pollution in Utopia is [ Answer40 = 7 ] ton(s) of solid waste generated
per day.
41. Starting with no solid waste pollution regulation, suppose the government passes a law that stipulates
that Firms X and Y are not liable for the environmental damage. Now suppose Utopian residents can
negotiate with Firm X or Firm Y to reduce solid waste, through lawyers. The cost of hiring lawyers
for the negotiation is 100.5 million dollars per ton. For example, to achieve a reduction of 3 tons
of solid waste, the Utopian residents will have to pay the lawyers 100.5 × 3 = 301.5 million dollars.
Eventually, the total amount of solid waste generated in Utopia will be [ Answer41 = 8 ] ton(s)
per day.

42. There are 120 residents in Neverland. Each resident is willing to pay $20 for each additional mile of
pedestrian road. The marginal cost of building an additional mile of pedestrian road is $100y, where
y is the length of pedestrian road in miles (assumed to be perfectly divisible). The socially efficient
length of pedestrian road to be built in Neverland is [ Answer42 = 24.00 ] miles.

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Please refer to the background information below to answer the following two questions.
Alison’s and Philip’s individual marginal benefit curves (both linear, marginal benefit in dollars) from
firework consumption are given below, where a = 20, b = 40, c = 30, d = 150. Q denotes the quantity of
firework (in minutes) and is assumed to be perfectly divisible. Firework is non-rival and non-excludable in
consumption.

43. Suppose that Q = 20. The marginal benefit of an additional minute of firework to the society is [
Answer43 = 36.00 ] dollars.
44. Suppose the marginal cost of producing firework is constant and equal to 39.5 dollars. The society
should have [ Answer44 = 15.00 ] minute(s) of firework.

Please refer to the background information below to answer the following four questions.
There are 25 residents in a small village. Each resident generates 1 kg of kitchen waste. Each resident has
to decide whether to dispose the untreated kitchen waste at a nearby landfill site or treat it with a kitchen
waste processor before disposing at the landfill. Untreated kitchen waste at the landfill generates bad odour.
If n residents dispose their untreated kitchen waste at the landfill, each resident will end up with a suffering
equivalent to $(64n + 150). (n can only take integer values.) The treated kitchen waste produces no bad
odour at the landfill but the treatment of the kitchen waste requires a cost of $1462 per kg.
45. If each resident makes decision individually, we would expect [ Answer45 = 20 ] kg(s) of untreated
kitchen waste to be disposed at the landfill in equilibrium.
46. From the society’s perspective, we should have [ Answer46 = 10 ] kg(s) of untreated kitchen waste
to be disposed at the landfill.
47. Suppose the government charges a tax of $448 per kg of untreated kitchen waste disposed at the
landfill. If each resident makes decision individually, we would expect [ Answer47 = 13 ] kg(s) of
untreated kitchen waste to be disposed at the landfill in equilibrium.
48. Suppose instead the government wants to impose a subsidy of $S to each resident who treat the
kitchen waste, so as to induce the socially optimal amount of untreated kitchen waste to be disposed
at the landfill. S should be greater than [ Answer48A = 608.00 ] and at most [ Answer48B =
672.00 ].

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Please refer to the background information below to answer the following three questions.
Suppose the hotel industry is a perfectly competitive constant cost industry. All hotels are identical (having
the same production costs and producing the same product). Both the number of hotels and the quantity of
hotel service are assumed to be perfectly divisible. A typical hotel has the following total cost and marginal
cost functions of hotel service:

Total Cost: T C = 50q 2 + 340q + 3560 dollars

Marginal Cost: M C = 100q + 340 dollars

where q is quantity of hotel service (in units) produced by a typical hotel. The market demand curve for
hotel services is (P is price per unit of hotel service in dollars, and Q is market quantity of hotel service):

P = 11000 − 16.2Q dollars

The hotel industry is at the long-run equilibrium.

49. A typical hotel will shut-down and produce zero quantity in the short run if the price is lower than [
Answer49A = 340.00 ] dollars. A typical hotel will exit from the industry in the long run if the
price is lower than [ Answer49B = 1183.80 ] dollars.
50. At the long-run equilibrium, the price is [ Answer50A = 1183.80 ] dollars per unit of hotel service.
Each hotel produces [ Answer50B = 8.44 ] units of services.
51. At the long-run equilibrium, there are [ Answer51 = 71.81 ] hotels in the market.

Please refer to the background information below to answer the following three questions.
A competitive firm has the following functions of average variable cost, marginal cost, and average cost (in
dollars).

AV C = q 2 − 10q + 95
M C = 3q 2 − 20q + 95
28
AC = q 2 − 10q + 95 + q

where q is the quantity of output (in units) produced by the firm.

52. The firm will shut down in the short run if the price is below [ Answer52 = 70.00 ] dollars.
53. The fixed cost of the firm is [ Answer53 = 28.00 ] dollars.
54. When the market price equals 95 dollars, the quantity supplied by the firm is [ Answer54A = 6.67
] units. Correspondingly, in the short run, the firm’s economic profit is [ Answer54B = 120.15 ]
dollars.

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Please refer to the background information below to answer the following two questions.
Consider a perfectly competitive decreasing cost industry producing good X with download-sloping market
demand with positive equilibrium price-quantity pairs. All firms are identical with positive fixed cost and
upward-sloping marginal cost curve.
Initially, the market is at the long-run equilibrium. The market equilibrium price is P0 , the market
equilibrium quantity is Q0 , the individual firm production quantity is q0 , and there are n0 firms. Each
individual firm earns a (long-run) economic profit of π0 .
Suppose there is an increase in market demand:
55. At the new short-run equilibrium, the price of good X (P1 ) will be [ Answer55A = A ] P0 .
Individual firm quantity (q1 ) will be [ Answer55B = A ] q0 .
Individual firm’s profit (π1 ) will be [ Answer55C = A ] π0 .

A. higher than B. lower than C. equal to

56. At the new long-run equilibrium, the price of X (P2 ) will be [ Answer56A = B ] P0 .
The market quantity of X (Q2 ) will be [ Answer56B = A ] Q0 .
The number of firms in the industry (n2 ) will be [ Answer56C = A ] n0 .

A. higher than B. lower than C. equal to

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Please refer to the background information below to answer the following six questions.
UP Electric is the sole electricity provider in Utopia. It faces the demand curve and cost curves below:

Demand: P = 310 − 4.8Q dollars per unit

Total cost: T C = 4Q2 + 30Q + 2000 million dollars each year
Marginal cost: M C = 8Q + 30 dollars per unit

where P is price of electricity in dollars per unit, Q is quantity of electricity in million units per year.
57. In the short run, to maximize profit, UP Electric charges [ Answer57A = 233.64 ] dollars per unit
of electricity and provides [ Answer57B = 15.91 ] million units of electricity per year.
58. Continue with the previous question. UP Electric earns a profit of [ Answer58 = 227.27 ] million
dollars per year.
59. Continue with the previous question. The deadweight loss in electricity market is [ Answer59 =
227.79 ] million dollars per year.
60. Suppose the Utopian government issues a directive that forces UP Electric to produce at the socially
efficient quantity. In the short run, UP Electric will earn a profit of [ Answer60 = -85.94 ] million
dollars per year.
61. Suppose the government instead requires UP Electric to pay a licence fee of 170 million dollars
per year. In the short run, UP Electric will charge [ Answer61A = 233.64 ] dollars per unit of
electricity and provides [ Answer61B = 15.91 ] million units of electricity per year.
62. Continue with the previous question. With this licence fee, in the short run, UP Electric will earn a
profit of [ Answer62 = 57.27 ] million dollars per year.

63. Calvin is a monopoly selling luxury cars in city A, and he can implement perfect price discrimination.
He faces a demand curve and a marginal cost curve (both in million dollars) given below:

Demand: P = 130 − 1.5Q million dollars per unit

Marginal Cost: M C = 2Q million dollars per unit

where Q is quantity of luxury cars in units. We can compute that the total consumer surplus in this
market is [ Answer63A = 0.00 ] million dollars and the total producer surplus in this market is [
Answer63B = 2414.29 ] million dollars.

14
Please refer to the background information below to answer the following two questions.
The Meomeo Park is the sole theme park in Utopia. The marginal cost of serving an additional visitor
is $240. The park incurs a cost of $20 per day regardless of the number of visitors. On a typical day, 10
visitors with the following reservation prices will come to the park. It is known that those with reservation
prices higher than $325 never care to use coupons.

Visitor Reservation price ($)

A 250
B 280
C 310
D 340
E 370
F 395
G 420
H 440
I 460
J 480

64. Suppose the park makes available discount coupons. With a coupon, each visitor can purchase the
ticket at the discounted price. Without coupon, visitors pay the regular list price. To maximize profit,
the park should set the list price at $[ Answer64A = 370.00 ] per ticket and the discounted price
at $[ Answer64B = 280.00 ] per ticket.
65. Continue with the previous question. The consumer surplus will be $[ Answer65A = 375.00 ] per
day and the producer surplus will be $[ Answer65B = 860.00 ] per day. The deadweight loss will
be $[ Answer65C = 110.00 ] per day.

Please refer to the background information below to answer the following two questions.
A profit-maximizing pharmaceutical monopolist sells vaccines to two geographically-separated countries, A
and B, where the respective demand curves for the vaccine are:

Country A: QA = 120 − 0.2P

Country B: QB = Y − 0.8P

where P is price per dose in dollars, Q is quantity in million doses and Y is a constant. Suppose the
marginal cost of producing vaccine is constant at 3 dollars per dose. Given the geographical separation of
the two markets, the firm can potentially charge two different prices in these two markets. Potentially, too,
arbitragers can buy from the low-price country and sell at the high-price country and make profit. The cost
of such arbitrage activity is T dollars per dose of vaccine.
66. Suppose T is very high such that arbitrage is not profitable. The monopolist will end up charging the
same prices in the two markets if Y is [ Answer66 = 480.00 ].
67. Suppose Y equals 320. The monopolist needs not worry about arbitraging and treats the two markets
as completely separate markets if the arbitrage cost per dose of vaccine between the two countries is [
Answer67A = B ] (A. lower; B. higher) than [ Answer67B = 100.00 ] dollars.

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68. A pharmaceutical company has developed vaccines to help prevent two diseases (Math Pox and Econ
Fever). Andy and Betty are potential consumers for the two vaccines. They can choose to get the
vaccination or not. If they choose to do so, they need only at most one dose of each vaccine. The
following table shows their willingness to pay (in dollars) for the two vaccines.

Andy Betty
Math Pox vaccine 100 150
Econ Fever vaccine 270 310

Suppose, for both vaccines, the marginal cost of supplying an additional dose is constant at 30 dollars,
and the fixed cost is zero. The company can sell the two vaccines separately or as a combo. When
the vaccines are sold as a combo, the company will incur an additional packaging cost of 5 dollars
per combo. The company should sell the two vaccines [ Answer68A = B ] (A. as a combo; B.
separately). The company can at most make a profit of [ Answer68B = 620.00 ] dollars.

END

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