BIE exam 20 June 2022 Solutions

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20 June 2022 Business and Industrial Economics [Professor P. Garrone], Academic Year 2021‐‘22 Solutions Multiple‐choice questions (10 points) 1. Consider a labor market where workers can signal their high ability (productivity) by acquiring education, and workers are paid according to their productivity a, conditi onal on their education level e (years of education). If a worker does not signal his/her ability through education, he/she is considered a low‐ ability worker. The productivity of high‐ability workers is aH = 25 and their unit (yearly) cost of education is cH = 3, while the productivity of low‐ability workers is aL = 10 and their unit (yearly) cost of education is cL = 5. Which of the following levels of education e* allows high‐abili ty workers to credibly signal their ability on the labor market? a. e* = 1 b. e* = 4 c. e* = 6 d. e* = 10 2. Two bakeries (A and B) compete by serving customers in the same neighborhood. Every day, both bakeries decide the output from their ovens, without observing t h e c h oic e mad e b y th e ot h e r . W h at would happen if bakery A started its activities and chose its output ahead of bakery B? a. bakery A would make larger profits, and social welfare would decrease b. bakery A would make larger profits, and social welfare would increase c. bakery B would make larger profits, and social welfare would decrease d. bakery B would make larger profits, and social welfare would increase 3. The minimum efficient size of electricity transmission in a cou ntry is estimated to be 50,000,000 customers. The demand in a specific country is 60,000,000 custo mers. The provision of electricity transmission services a. may or may not be a natural monopoly b. is certainly a natural monopoly c. is certainly not a natural monopoly d. is a…