Date June 25, 2018

COURSE Business and Industrial Economics [Professor P. GARRONE]

ACADEMIC YEAR 2017-‘18

NAME AND SURNAME ___________________________________________________

ID NUMBER ____________________________________________________________

Fill the above heading with your Name, Surname and Id Number

Exam policy
During the BIE exams, students
- Have to arrive on time and must leave their personal belongings (bags, backpacks,
etc.) near to the lecturers’ desk; have to bring their ID card and be ready to show it.
- Must switch off their PC, mobile phones, smartphones and tablets. They cannot use
or touch them, but they can use a pocket calculator.
- Have to write in a readable way and have to hand in the text and all the copies of
their essay before leaving the exam room
The following conducts are forbidden
- (i) To communicate in any form with fellow students or others in class or outside; (ii)
To use the phone or any other communication device; (iii) To copy parts of the essay;
(iv) To browse notes, textbooks, slides, or Internet documents;
- Plagiarism is regularly checked on a sample of essays.
- Students who cheat and break the rules are «Rejected», i.e. they can’t take any more
the exam during the current Academic Year
Further information
- Multiple-choice questions: one and only one answer is correct, and brings positive
points; other answers give rise to neither negative nor positive points, exactly like
unanswered questions; correct answers for at least 6 questions out of 10 are a pre-
condition to pass the exam.
- You have 1 hour and 30 minutes to complete the exam.
- The evaluations will be published by July 3rd, 2018.

Please do not overwrite the table.

Multiple-choice questions (10 points)

Please tick the letter of the most appropriate answer

1. Car makers exhibit the concentration vectors 𝑆𝑆𝐴𝐴 in country A and 𝑆𝑆𝐵𝐵 in country B
𝑆𝑆𝐴𝐴 = [0.40, 0.20, 0.20, 0.10, 0.10]

𝑆𝑆𝐵𝐵 = [0.30, 0.30, 0.30, 0.10]

The Herfindahl – Hirschman Indexes (HHI) are

a) 𝐻𝐻𝐻𝐻𝐻𝐻𝐴𝐴 = 2,400 and 𝐻𝐻𝐻𝐻𝐻𝐻𝐵𝐵 = 3,000

b) 𝐻𝐻𝐻𝐻𝐻𝐻𝐴𝐴 = 2,300 and 𝐻𝐻𝐻𝐻𝐻𝐻𝐵𝐵 = 2,500
c) 𝐇𝐇𝐇𝐇𝐇𝐇𝐀𝐀 = 2,600 and 𝐇𝐇𝐇𝐇𝐇𝐇𝐁𝐁 = 2,800
d) 𝐻𝐻𝐻𝐻𝐻𝐻𝐴𝐴 = 2,500 and 𝐻𝐻𝐻𝐻𝐻𝐻𝐵𝐵 = 2,300

2. The national environmental authority regulates the air quality. It sets a threshold for the
concentration of particulate matter in the gases and fumes that residential heating systems release
in the air. It punishes the rule breakers with a very high fine. The policy is

a) an emission tax
b) a performance standard
c) a technology standard
d) a ban on the most harmful technologies

3. The only one cinema (movie theatre) located in your neighbourhood is offering special prices to
young residents (Y, younger than 25 years and residing in the neighbourhood), 𝑝𝑝𝑌𝑌 [Euro − ticket] .
The marginal cost of service for Y is the same as the marginal costs for others (O). The cinema has
found out that on average Y’s demand for the service is more elastic than O’s demand, 𝜖𝜖 𝑌𝑌 > 𝜖𝜖 𝑂𝑂 .
Now the cinema wants to set the most profitable prices for Y and O.

a) This is a case of price discrimination by self-selection

(𝒑𝒑𝒀𝒀 −𝒄𝒄) 𝟏𝟏 (𝒑𝒑𝑶𝑶 −𝒄𝒄) 𝟏𝟏
b) The price for Y is lower than the price for O, i.e. 𝒑𝒑𝒚𝒚
= 𝝐𝝐𝒀𝒀 and 𝒑𝒑𝑶𝑶 = 𝝐𝝐𝑶𝑶
𝑝𝑝𝑌𝑌 1 𝑝𝑝𝑂𝑂 1
c) The price for Y is higher than the price for O, i.e. = 𝑌𝑌 and = 𝜖𝜖𝑂𝑂
𝑐𝑐 𝜖𝜖 𝑐𝑐
d) This is a case of perfect price discrimination

4. Which of the following examples is NOT a case of direct network effects:

a) Messaging system
b) Second language spoken (the first language is own mother tongue)
c) Operating systems of smartphones
d) Telephone

5. What are the main drawbacks of measuring the innovation capability of a business enterprise
through R&D inputs, e.g. the number of R&D employees, R&D expenditures or R&D intensity?

a. Data are very difficult to find. Second, while R&D inputs are certain, innovation outputs are
uncertain.
b. They are not suitable for describing innovation in industries that follow a Schumpeter Mark II
innovation pattern. Second, data are very difficult to find.
c. There are other innovation sources, e.g. learning by doing. Second, while R&D inputs are
certain, innovation outputs are uncertain.
 d. They are not suitable for describing innovation in industries that follow a Schumpeter Mark II
innovation pattern. Second, there are other innovation sources, e.g. learning by doing.

6. The Uppsala model of internationalization (Scandinavian School) assumes that firms:

a. Are born global.
b. Start the process of internationalization by setting up manufacturing plants overseas.
c. Take a staged approach to internationalization.
d. Start the process of internationalization by setting up joint ventures overseas.

7. A firm operates the last stage of the supply chain as a monopolist, i.e. operates a “bottleneck”, and
is vertically integrated in the competitive upstream stage. It

a. Is able to put the upstream rivals at a disadvantage by foreclosing the access to customers.
b. Can treat the upstream rivals with price discrimination yet not through quality discrimination.
c. Can be easily driven out of the market by the upstream rivals that have a “deep pocket”.
d. Is more allocatively efficient than a monopolist that is not vertically integrated.

8. Innovations aimed at improving the efficiency in the use of natural resources may exhibit a
rebound effect. This means that an enhancement of resources efficiency

a. Causes an increase in the resource consumption.

b. Does not cause any resource saving.
c. Causes a less than proportional resource saving or even a greater resource consumption.
d. Improves the economic resources efficiency and worsens the technical resources efficiency.

9. Some managers and workers of non-profit organizations experience intrinsic motivations towards
their job.

a. They are not interested in the economic performances of the organization.

b. They are not interested in their own utility, only in the utility of customers/beneficiaries.
c. They experience a state of fulfilment when the quality of their service is high.
d. They do not have the skills necessary to work in a for-profit organization.

10. According to the patronage theory, the managers of State-owned enterprises

a. May be forced to pursue the interest of politicians, i.e. to serve the politician’s voters and
supporters more than the enterprise customers.
b. Are generally not aligned to the objectives of the society, i.e. they pursue their own private
interest.
c. They are not particularly keen to enhance their managerial reputation for the aim of their
career.
d. Are likely to be corrupted.
Structured Question (10 points)

Keys / Development hints (further discussion points are possible and welcome provided that they
are correct)

a. How can we model the abatement costs pertaining to the adoption and operation of
environmentally-friendly technologies (i.e. describe them also through formulas and / or graphs)?
(max 8 lines overall)

Answers should address the following points (See Slides on Environmental policy)

- Define EF technologies and explain what abating emissions means

- Define (Total) abatement costs A(x) (additional costs related to the investment in EF
technologies and their operation) and Marginal abatement costs, MA
- Explain why A increase more than proportionally with abated x and MA are increasing

Figure

b. Explain how a business enterprise makes the decision on the quantity of emissions that have to be
abated. (max 8 lines overall)

Answers should address the following points (See Slides on Environmental policy)

- MA and ME (marginal external costs) are compared

- Businesses take into account ME because we assume to be in a PPV / compensation of “victims”
scenario

Figure

- Note: given the emissions without EF technologies, x, a part is abated and the other part is
released: xAB+xEM = x; as a consequence MA and ME are repositioned in the same plan
- Equilibrium / decision is based on cost-effectiveness: Emissions for which MA≤ME are abated

c. Illustrate the efficiency gain created by the abatement of emissions through the adoption and
operation of environmentally-friendly technologies. (max 8 lines overall)

Answers should address the following points (See Slides on Environmental policy)

- Abatement helps through EF technologies to avoid the most harmful emissions

- W is enhanced compared to the case without EF technologies, because the abatement costs
are smaller than the increase that would otherwise occur in external costs
- Welfare enhancement = avoided external costs net of abatement costs

Figure