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2. A commonly used rule-of-thumb in the antitrust practice is the UPP (upward pricing pressure), which we will return to later in the course. For now, it suffices to know that the formula is UPP 12 = $12 (p1 - c1), with 612 the diversion ratio (from prod- uct 2 to product 1 due to a price change of product 1), or expressed in percent- age terms, UPP12 = 612L1, where L1 is the Lerner index. The lat- ter statistic, UPP12 can be thought of as a ballpark perunage change in the price of product 2 if two single prod- uct firms producing differentiated prod- ucts 1 and 2 merged, they were en- gaged in Bertrand competition before the merger, and there are no efficien- cies; it does not have to be a merger to monopoly. (a) Explain why a higher value of the Lerner index for product 1 would suggest that the merger result in a higher price of product 2. (b) Explain why a higher diversion ratio 612 would suggest that the merger result in a higher price of product 2. (c) How can it be that when either the Lerner index is zero or the diver- sion ratio is zero then the formula suggests that the merger will not lead to a higher price for product 2? (d) Bonus question: (treat it as a puz- zle): if the volume for product 1 is twice that of product 2, the own price elasticities of both prod- ucts are equal to -2, 612 = 0.4 and621 = 0.2 (using the definitions of these symbols used in the lecture notes), then what is the value of UPP*,? There is one redundant piece of information