1. Suppose a monopolist Fp in the burgers market produces patties (p) at zero cost and...

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1. Suppose a monopolist Fp in the burgers market produces patties (p) at zero cost and the demand for patties is given by: = Qp-1-Pp-P where Qp is the quantity of patties demanded, P is the price of patties, and P is the price of buns, which are available to consumers through a different firm, F, at a price of P = . The demand for buns if given by: Qb = 1 _ 3 Pb Now suppose Fp acquires F and produces both patties and buns at zero cost. Will this acquisition lead to an increase or a decrease in the price of patties? Find the old and new equilibrium quantities and prices. 2. Assume that demand for services per period is Pt = - 1000 Qt where Qt is the stock of the durable consumed. Let the discount factor for both consumers and the firm be 1. Suppose that the monopolist has a choice: she can either produce a product that is durable at zero marginal cost or she can produce a nondurable productit provides consumption services for only one periodat marginal cost c. Assume that there are only two periods. (a) For what values of c would a monopolist that sells its output and cannot commit to prices choose the nondurable product? (b) For what values of c would a monopolist that leases its output introduce the nondurable product? 1. Suppose a monopolist Fp in the burgers market produces patties (p) at zero cost and the demand for patties is given by: = Qp-1-Pp-P where Qp is the quantity of patties demanded, P is the price of patties, and P is the price of buns, which are available to consumers through a different firm, F, at a price of P = . The demand for buns if given by: Qb = 1 _ 3 Pb Now suppose Fp acquires F and produces both patties and buns at zero cost. Will this acquisition lead to an increase or a decrease in the price of patties? Find the old and new equilibrium quantities and prices. 2. Assume that demand for services per period is Pt = - 1000 Qt where Qt is the stock of the durable consumed. Let the discount factor for both consumers and the firm be 1. Suppose that the monopolist has a choice: she can either produce a product that is durable at zero marginal cost or she can produce a nondurable productit provides consumption services for only one periodat marginal cost c. Assume that there are only two periods. (a) For what values of c would a monopolist that sells its output and cannot commit to prices choose the nondurable product? (b) For what values of c would a monopolist that leases its output introduce the nondurable product?

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Answer To solve this problem we need to analyze the monopolists decision to choose between a durable and a nondurable product in the twoperiod setting ... View the full answer