Network Examples

                                  Economics 1


    1.  A group of 7 consumers are considering whether to hook up to a
        new computer network.  Consumer 1 has Initial Value 1, consumer 2
        has Initial Value 2, and so on up to consumer 7 who has Initial
        Value 7. Each consumer's Buyer Value for belonging to the network
        is equal to her Initial Value times the total number of consumers
        who hook up to the network. What is the highest price at which 5
        consumers could hook up to the market and all either make a
        profit or break even? 

        (a) $10 
        (b) $12 
        (c) $15 
        (d) $17 
        (e) $13 

    2.  Suppose that the cost of hooking up to the network is $15 and
        that nobody will sign up for the network unless at the time he
        signs up, his Buyer Value is at least $15.  How many people will
        sign up? 

        (a) 0. 
        (b) 3 
        (c) 5 
        (d) 6 
        (e) 4 

    3.  Suppose that the price of hooking up to the network discussed in
        the previous two problems is $15. In the group of 7 people, there
        are 2 "optimists" who will hook up to the network whether or not
        their Buyer Values exceed the price at the time they make their
        purchase, and there are 5 "conservatives" who will sign up if and
        only if their Buyer Values when they sign up are at least $15. 
         

        (a) Nobody except the optimists will hook up and all of the
            optimists will lose money. 
        (b) Nobody except the optimists will hook up. Some of them will
            make money and some will lose money. 
        (c) Once the optimists have hooked up, others will hook up until
            all 7 people are connected to the network. 
        (d) Once the optimists have signed up, others will hook up until
            5 people are connected to the network, while 2 people will
            never hook up. 
        (e) Once the optimists have hooked up, others will hook up until
            4 people have hooked up. The remaining people will never hook
            up. 


                                  Answer Key
    
    Network Examples

     


         1.   C     
         2.   A      
         3.   D     
         0 of these questions have been used previously.