Learning Objectives to Chs 2, 3, 4, and 7.

Сh. 2
explain the difference between a structure measure like CR4 and a performance measure like
efficiency, profitability, or Pareto optimality.
4. The student will understand the issues related to the definition of a market (not from the Intro to
Micro!) and how this affects measures of concentration. The student will understand that an
appropriate definition for one type of analysis may not be appropriate for another type of analysis
and how aggregation can both clarify and cloud issues of market structure.
8. The student will be able to discuss some of the problems that vertical and horizontal integration,
contracts, leases, and franchises present in classifying markets and industries.
9. The student will understand the differences between the neoclassical (technological) view of the
firm and other views related to agency theory, transactions costs, incomplete contracts, and
residual control rights. The student will be able to discuss some of the limitations of the
neoclassical approach in explaining the boundaries of the firm .
12. The student will understand economies of size and natural monopoly and how technology can
affect industry structure. The student will also be able to solve simple intuitive problems related to
the optimal number of firms in an industry.
13. The student will be able to state various reasons for the existence of scale economies
including:
a. technical factors related to size and volume
b. specialization and the division of labor
c. economies of mass reserves
d. indivisibility of inputs and allocation of fixed costs

16. The student will be able to explain and calculate various measures describing the structure of
multiproduct technologies including formulas of (from the textbook – not from the Microeconomics):
a. marginal cost
b. ray average cost
c. elasticity of scale
d. economies of scope

17. For the instructor who chooses to cover additional multiproduct cost concepts, the student will
be able to explain and calculate these additional measures describing the structure of multiproduct
technologies (formulas):
a. incremental cost (IC)
b. average incremental cost (AIC)
c. product specific economies of scale (PSE)
19. The student will be able to explain how flexible manufacturing technologies allow firms to
capture economies of scope in offering related products to the market. The student will also be
able to describe the basic differentiated product model of manufacturing due to Eaton and Schmitt
and the tradeoffs between specialization and economies of scope. The student will be able to
explain how a model based on distance can be used to describe product variety.

20. The student will be able to present a reasoned argument on various non-cost determinants
of market structure. The student will be able to give examples of these determinants.
Items to be discussed include:

a. market size in relation to technological factors

b. network externalities
c. government regulatory policy
d. patents and copyrights

21. The student will be able to explain how a performance measure (affecting structures of
markets) such as the Lerner index (including price elasticity of demand of MARKETS!!!) differs
from a concentration measure such as the Herfindahl index in terms of purpose and use. The
student will also be able to explain the derivation of the Lerner index and be able to compute it
given appropriate data.

Ch. 3
8. The student will be able to explain the concepts of block pricing and two-part tariffs and compute
such prices for simple examples graphically and algebraically. The student will be able to compute
total and consumer surplus for linear demand schedules in order to compute these optimal tariffs.
9. The student will be able to show how second degree price discrimination leads to volume
discounts and various ways to implement such discounts in a way to maximize profits. The student
will be able to analyze block pricing schemes utilizing self-selection mechanisms. The student will
be able to compute consumer surplus in analyzing incentive compatibility problems of various
block pricing schemes.
10. The student will be able to determine the optimal block pricing scheme in a model with two
types of consumers.
11. The student will be able to differentiate volume discounts based on cost from those based on
price discrimination.
13. The student will be able to solve third degree price discrimination problems graphically and
algebraically.
The student will understand the difference between horizontal and vertical summation of demand
and marginal revenue curves. The student will be able to state simple results about price
elasticities and relative prices in separated markets.
15. The student will be able to give a brief history of price discrimination in the United States and
give reasons for changes in the policy over time. The student will also be able to explain some of
the empirical measures that are used to detect price discrimination.
16. The student will be able to explain how quality can affect demand and also supply. The student
will be able to solve simple problems where there is a choice of quantity and a choice of the
amount of output to supply.
17. The student will be able to explain the difference between social welfare and monopoly
welfare. The student will be able to apply this concept to the problem of quality choice.
18. The student will be able to find the minimum cost of production for a multiplant firm graphically.
The student will be able to explain the intuition behind the equi-marginal result. The student will be
able to determine the profit maximizing output for a multi-plant monopolist.

Ch. 4
1. The student will be able to discuss differences between charging different prices for the same
good, different prices for different goods (or different models of the same good) that have the same
production and marketing costs, and different prices for goods with different costs. The student
will be able to explain the concept of net price.
2. The student will be able to explain how selling different varieties of the same good may allow the
firm to identify individual consumers and prevent effective arbitrage between them. The student
will be able to relate this explanation to the material on price discrimination from Chapter 3.
3. The student will be able to give examples of ways that firms may be able to identify different
consumer’s willingness to pay in order to facilitate price discrimination.
Among others, examples include:
a. business versus vacation travel and length of stay
b. atmosphere in which a sale is made (specialty store versus discount store perfume or
diamonds) when the cost of providing the quality atmosphere is much less than the price
difference
c. paint or chrome added to a car when the cost of the materials and labor are far less than the
price difference
d. crimping such as with computer chips, software, or printers
e. type of container for bottled water when the water is exactly the same and the container cost
difference is less than the price difference
f. currently “hot” versus standard colors when the cost of the dyes is the same.

4. The student will be able to distinguish vertical from horizontal product differentiation.
5. The student will understand how to interpret physical space and distance as distance in product
space in defining a spatial model of product differentiation.
6. The student will be able to set up and solve graphically and algebraically a simple one-
dimensional spatial model with the following characteristics:
a. single firm
b. one outlet located in the middle of the product space
c. identical good except for distance
d. transportation cost that is proportional to distance
e. identical consumers who are spaced uniformly on the product line
f. consumers demand only one unit of the good per period with constant reservation price V
g. constant marginal cost of serving each customer
h. all consumers in the economy are served

7. The student will be able to explain the extension of the model with one shop, which is optimally
located in the center of the product space, to a model with two shops, each located 1/4 of the
distance towards the center from the respective ends of the product space. The student will also
be able to explain why in the general case (with n shops), the monopolist will locate them
symmetrically at distances 1/2n, 3/2n, 5/2n, 7/2n, ... , (2i-1)/2n, ... , (2n-1)/2n from the left-hand
end of the market.
8. The student will be able to explain why the location of a firm in product (geographic) space is an
important part of the profit maximization decision. The student will be able to show that a
monopolist will add additional shops if … (formula).
9. The student will be able to effectively discuss issues related to the optimal number of shops
operated such as the impact of fixed set-up costs, transportation costs, the number of consumers,
and so forth.
10. The student will be able to extend the model in which all customers are assumed to be served
to one where only part of the market is served. The student will be able to explain (and/or derive)
the optimal pricing rule [p* = (V+c)/2 ] when only part of the market is served. The student will be
able to explain the condition (V < c + t/n) implying that only a portion of the market should be
served. The student should also be able to explain/derive the optimal selling price in the entire
market/part market cases. The student should also be able to explain the intuition behind these
strategies.
11. The student will be able to derive the total transportation plus setup costs of operating n shops
when population is N as … (Formula) using intuition and appropriate geometric arguments.
12. The student will be able to explain when it is socially optimal to add an additional shop, that is,
be able to derive and explain the inequality … (Formula)
13. The student will be able to coherently discuss the issue of whether the monopolist produces
too much or too little product variety by considering the social benefits and costs from adding more
shops to the spatial model. Specifically, the student will be able to compare the social optimum
condition for adding a shop … Formula, with the conditions under which a monopolist would prefer
to add a shop … Formula. The student will be able to discuss the empirical evidence on this issue.
15. The student will be able to show that the price discriminating monopolist in the spatial model
who serves all the customers will produce the socially optimal product variety, that is, the
monopoly firm will not produce too much product variety.
19. The student will be able to analyze commodity bundling decision using the simplified version of
the Adams/Yellen model with two goods.
This model assumes:
a. constant marginal costs of production with no economies of scope
b. consumers have a reservation price for each good
c. consumers will buy exactly one unit of a good per period if the price is less than the reservation
price
d. there are no consumption externalities so that RB = R1 + R2 where RB denotes the reservation
price of the bundle and Ri denotes the reservation price of commodity i.
e. consumers are not uniform but differ in their respective RB, R1, and R2.
f. consumers can be divided into groups based on their preferences and a given set of price offers.

20. The student will be able to distinguish pure and mixed bundling strategies and determine the
optimal bundling strategy given data on reservation prices for different groups.
22. The student will be able to determine appropriate prices for tied goods.
23. The student will be able to explain how market leverage can be used to enhance profits. The
student will be able to explain the idea of complementary products and relate this to the incentives
to bundle or unbundle products.

Ch. 7
4. The student will be able to use the simple linear one-shot oligopoly model with two firms to
show:
a. Both firms do better if they join the cartel as compared to perfect competition or a 2-firm Cournot
oligopoly.
b. A firm that deviates from the 2-firm cartel is always better off if the other firm continues to
behave like a cartel member after the defection.
6. The student will be able to distinguish one-shot from repeated games and discuss some of the
strategies a firm might choose to employ in a repeated game to discourage cartel members from
defecting. The student will be able to explain the need for discounting in analyzing repeated
games, and be able to solve simple discounting problems.
10. The student will be able to explain the Folk theorem and how repeated games can lead to
higher payoffs than those possible in a one-shot Nash equilibrium.
11. The student will be able to state factors that make collusion likely to occur.
a. potential for monopoly profit
b. low costs of reaching an agreement such as a small number of firms, high concentration, similar
marginal costs of production, and product homogeneity
c. low costs of maintaining an agreement such as frequent interaction
d. stable market conditions

12. The student will understand how firms can use pricing mechanisms such as:
basing-point pricing,
most favored-customer clauses,
meet-the-competition clauses, and
the like to help maintain price fixing agreements.

13. The student will be able to explain some of the difficulties for regulators in detecting collusion
and why asymmetric information exacerbates this problem.