e. You are a lawyer working with a client which believes that it has been injured by Company X pricing its pizza below average variable cost. You notice that the cost of entry into the pizza business does not seem to be high. Assuming that X is indeed pricing pizza below average variable cost, would a predatory pricing lawsuit be likely to succeed? Explain. 2. Tying and Bundling Questions a. You are a monopolist of cherts and one of many sellers of flints. Consumers are willing to pay $20 for a chert. Your marginal cost for a chert is 54. You also sell into the int market, where your marginal cost, like that of all other int sellers, is $2. i. What is your profit, if you price cherts and ints independendy? ii. Would a tying arrangement increase your prots? b. You are, again, a monopolist of cherrs. The demand curve for cherts is given by the equation, (101 = 100 ZPCH , where QCH is the quantity of charts demanded, and PCH is the price of cherrs. The marginal cost of cherts is $1. What is the profit-maximizing price of charts? c. You also sell into the market for fb'nts, which is perfectly competitive. The marginal cost of flints is also $1. Some flint consumers also value chert, but some do not. The demand curve for flint by customers who buy both chert and int is ercHZ 50 P r. The demand curve for flint by customers who buy only int is Q; = 50 Pr. Now suppose that you consider a tying arrangement, in which you only sell cherts to consumers i 3\" they buy all their flints from you, too. Is it possible to increase prots over what you got under independent pricing? Prove your answer numerically. d. Is your answer to part (c) the same as what you determined in part (a)? Explain why the two answers are, or are not, the same. 3. Vertical Issues Suppose that you want to buy a Lexus, and that you live in Austin. You have gone to Lexus of Ausu'n, and have bargained the dealer down to 552,000. Over the weekend, you and your family go to San Antonio to see friends, and you notice North Park Lexus of San Antonio. You stop in, and nd North Park Lexus of San Antonio to be much more reasonably priced than Lexus of Austin was. You agree on a price of $50,000 for the same car. You sign papers, and agree to piclt up the car on Thursday. On Tuesday, you get an apologetic phone call from North Park Lexus. They have called Toyota (the manufacturer of Lexus) and have been told that, because you live in Austin, you can only buy a Lexus from Lexus of Austin