INDUSTRIAL ORGANIZATION AND ANTITRUST POLICY Econ class

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

Question 2 Consider an upstream monopolist A which sells wood W to a downstream rm B which sells tables T in a perfectly competitive market. The demand for tables is represented by the inverse demand curve PC?) = 200 T. Monopolist A harvests wood at a constant marginal cost m = 3 and sells wood in the monopoly market at a price w(W) The downstream rm B produces tables according to the production function T : min{W, 2N} where W is the wood from the monopolist and N are nails which are sold at a constant price 71 = 6. (a) Suppose that the rms are separate. What is the prot maximization problem for the monopolist A? What is the quantity of wood which is sold, the price of wood w(W) in equilibrium, and what are the prots of rm A and rm B? (b) Suppose the monopolist A vertically integrates with the downstream rm B. What is the quantity of tables sold, the price of tables sold in equilibrium and the prots of the integrated rm? ((3) Suppose the production function for the downstream rm is T = WN %. Would prots change? If so, why