3. [20p] A final good is assembled with two components: R and U. The supplier of...

 

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3. [20p] A final good is assembled with two components: R and U. The supplier of R is a regulated monopolist whose marginal and average cost of production is 4. Regulation can force the monopolist of R to charge no more than his MC. U is supplied in a perfectly competitive market (including the supplier of R) with marginal and average cost of 6. The demand for the final good is given by Q = 64 - P where P = PR + PU and PR, PU are the prices of R and U. a) What are the equilibrium P, Q and monopolist's profit under no regulation? [4p] b) Find equilibrium P, Q and monopolist's profit under regulation. [4p] c) Suppose that the monopolist will sell R only to consumers that purchase U from him. What is its profit-maximizing price of U under regulation? [6p] d) Is regulation on R effective when tie-in sales are permitted? [6p] 3. [20p] A final good is assembled with two components: R and U. The supplier of R is a regulated monopolist whose marginal and average cost of production is 4. Regulation can force the monopolist of R to charge no more than his MC. U is supplied in a perfectly competitive market (including the supplier of R) with marginal and average cost of 6. The demand for the final good is given by Q = 64 - P where P = PR + PU and PR, PU are the prices of R and U. a) What are the equilibrium P, Q and monopolist's profit under no regulation? [4p] b) Find equilibrium P, Q and monopolist's profit under regulation. [4p] c) Suppose that the monopolist will sell R only to consumers that purchase U from him. What is its profit-maximizing price of U under regulation? [6p] d) Is regulation on R effective when tie-in sales are permitted? [6p]