## Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: C. Natural Monopoly

C. Natural Monopoly: (20 minutes—if you are not through after 20 minutes, skip to the next question): All of the 10,000 students at Crony Capitalism University are addicted to The Social Network. The Social Network has no costs: the programming has been done, and the maintenance, bandwidth, and cloud-storage costs are negligibly small. The Social Network sells ads at $1/minute per student—thus if every student watches an ad the advertiser pays The Social Network$10,000; if half the students watch an ad the advertiser pays The Social Network $5,000; and if no students watch an ad the advertiser pays The Social Network$0. The students at CCU who do not install ad-blocking software on their browsers see all ads. The students at CCU who do install ad-blocking software on their browsers see no ads. The fraction F of CCU students who install ad-blocking software is given by the following equation:

• F = 0 + Q/300