Problem 1: Horizontal Merger (25 points). Assume that there are only two rms that produce noncraft beer: Coors and Budweiser. These two rms propose a horizontal merger. Consider each of the following scenarios. a) 13) Why would Coors and Budweiser claim that the relevant market is all cm and non cm beer producer's (including craft beer producers like Sierra Nevada}? What evidence might they look for in order to back 11p this claim? Budweiser is currently setting the price well above its marginal cost. If Coors raises the price by $0.25, the demand for Coors will decrease by 1,000 units. At the same time, the demand for Budweiser will increase by 750 units. What is the diversion ratio? Do you think the upward pricing pressure is small or large in this case? Now, assume that Coors and Budweiser are actually perfect substitutes for all con sumers. Demand for noncraft beer is given by Q = 8, 000 2001\". Before the merger price equals marginal cost of noncraft beer, P0 = MG} = 20. After the merger, the price increases to P1 = 30 and the marginal cost decreases to M C1. How low must MCI be so that the cost savings offsets the DWL due to the higher price? At the antitrust authority, someone nds an error in the demand curve estimated in the previous part. It turns out that the demand curve is more elastic than they previously thought.I Will the antitrust authorities to be more or less likely to block the merger than before? Explain