# International Economic Exam Paper

1171 Words May 21st, 2012 5 Pages
MN5118 / MN5118R

UNIVERSITY OF LONDON MSc EXAMINATION 2011

For Internal Students of Royal Holloway

DO NOT TURN OVER UNTIL TOLD TO BEGIN
MN5118 : INTERNATIONAL BUSINESS ECONOMICS MN5118R : INTERNATIONAL BUSINESS ECONOMICS - PAPER FOR RESIT
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PAPER A

Time Allowed: THREE hours Answer THREE questions

No credit will be given for attempting any further questions.

This exam paper has been made available in electronic form strictly for the educational benefit of current Royal Holloway students on the course of study in question. No further copying, distribution or publication of this exam paper is permitted. By printing or downloading this exam paper, you are consenting to these restrictions. © Royal Holloway
This implies that the marginal cost of effort is MC=0 for e ≤ 20 and MC=e-20 for e>20. The firm gets 100£ per unit of efforts the employee exerts so it’s profit function is π= 100e – (employee compensation). Describe and comment on the respective gains to the employee and the firm of compensation package i), ii) and iii). Show details of your calculations. (12 marks) NEXT PAGE

Page 3 of 5

MN5118 / MN5118R

c) What compensation package would you recommend for your firm? (3 marks) d) Some expert suggests that performance pay is not useful in the context of team production. Why is that? (5 marks) TOTAL: 25 MARKS Question 4. The pizza market is divided as follows: Restaurant Pizza Hut Domino’s Little Caesars Pizza Inn Round Table All others (less than 1% of the market each) a) How would you describe its market structure? b) What is the four-firm concentration ratio? c) What is the Herfindahl index? d) What is the numbers-equivalent of firms? What does it mean?

Market share 20.7 % 17.0 % 6.7 % 2.2 % 2.0 % 51.4 %

(3 marks) (3 marks) (3 marks) (3 marks)

e) Pizza Inn is hoping to acquire Round Table. The Competition Authority is examining their application. Recalculate the 4-firm concentration ratio, the Herfindahl index and the numbers-equivalent of firms after the proposed merger takes place. (6 marks) f) What do you think the Competition Authority will recommend? Explain your answer. (3 marks) g) Critically assess the Herfindahl Index and

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