INDUSTRIAL ORGANIZATION AND ANTITRUST POLICY Econ class

Reference - Modern Industrial Organization by Dennis W. Carlton and Jeffrey M. Perloff, 4th edition, 2015.

Question 1 Consider an upstream monopolist which sells wool W to downstream monopolist B which produces Minnesota Gopher hats H. Suppose that the demand for Minnesota Gopher hats is represented by the inverse demand curve P(H ) = 100- H. Monopolist B produces hats according to the following production technology H = =W, i.e. 4 units of wool yields 1 Minnesota Gopher hat. Suppose that both firms are monopolists in their respective markets. Furthermore, monopolist A harvests wool with the following cost structure C(W) = 2W2 + 2W, while monopolist B manufactures Minnesota Gopher hats with the following cost structure C(H) = 10H. (a) Find the price of wool Pw, the price of Minnesota Gopher hats PH, the consumer surplus, and the profits for both firms. (b) Suppose both firms verticaly integrate. Find the price of Minnesota Gopher hats PH, the consumer surplus, and the profits for the integrated firm