Version A

I. Multiple choice [2 pt each: 20 pts total]

(1)b. (2)b. (3)c. (4)e. (5)a. (6)a. (7)b. (8)d. (9)b. (10)b.

II. Problems

(1) [Tying: 28 pts]

1. $300;
2. $150;
3. $200;
4. $800;
5. $300;
6. $900;
7. As a package.

(2) [Double marginalization with fixed proportions: 52 pts]
a. MR_P = 12 - (Q/50);
b. P_S = 9 - (Q/50);
c. MR_S = 9 - (Q/25);

Table of Results [36 pts]	(i) Successive monopolies	(ii) Vertically integrated monopoly
Q = quantity of sauce (and pizzas)	200	400
PS = price of sauce	$5
Profit of upstream firm	$200
PP = price of pizzas	$10	$8
Profit of downstream firm	$400
Total upstream + downstream profits	$1200	$1600

d. The government should not try to block the merger because price will be lower after the merger and consumers will be better off.

Version B

I. Multiple choice [2 pt each: 20 pts total]

(1)b. (2)c. (3)a. (4)e. (5)b. (6)b. (7)a. (8)b. (9)d. (10)a.

II. Problems

(1) [Tying: 28 pts]

1. $150;
2. $150;
3. $250;
4. $1000;
5. $400;
6. $1200;
7. As a package.

(2) [Double marginalization with fixed proportions: 52 pts]
a. MR_P = 15 - (Q/50);
b. P_S = 12 - (Q/50);
c. MR_S = 12 - (Q/25);

Table of Results [36 pts]	(i) Successive monopolies	(ii) Vertically integrated monopoly
Q = quantity of sauce (and pizzas)	250	500
PS = price of sauce	$7
Profit of upstream firm	$1250
PP = price of pizzas	$12.50	$10
Profit of downstream firm	$625
Total upstream + downstream profits	$1875	$2500

d. The government should not try to block the merger because price will be lower after the merger and consumers will be better off.

[end of answer key]