Version A

I. Multiple choice [2 pts each: 8 pts total]

(1)a. (2)d. (3)a. (4)b.

II. Problems

(1) [Merger statutes: 15 pts]

1. Hart-Scott-Rodino Act.
2. Sherman Act, Section 1.
3. Sherman Act, Section 2.
4. Clayton Act, Section 7.
5. Celler-Kefauver Act.

(2) [Welfare tradeoffs of mergers: 36 pts]

1. $4.
2. 16 million.
3. Marginal revenue curve is a line with price intercept at $12 and quantity intercept at 12 million.
4. $7.
5. 10 million.
6. 5/7 = 0.7143.
7. $39 million.
8. $30 million.
9. $9 milllion.
10. $20 million.
11. increase.
12. $11 million.

(3) [HHI and merger guidelines: 18 pts]

1. 2282.
2. moderately concentrated.
3. 2828.
4. highly concentrated.
5. (i) is "presumed to be likely to enhance market power."
6. The post-merger HHI is greater than 2500 and the change in the HHI caused by the merger is greater than 200 points.

(4) [Conglomerate mergers: 18 pts]

1. Yes economies of scale.
2. AC(100)=$500 and AC(200) = $450, so average cost decreases with quantity.
3. No economies of scale.
4. AC(50)=$400 and AC(100) = $420, so average cost increases with quantity.
5. No economies of scope.
6. Total cost of producing computers and smartphones separately in different firms is less than the total cost of producing them together in the same firm. For example,
   TC(100 computers) + TC(50 smart phones) = $70,000.
   TC(100 computers, 50 smart phones) = $75,000.

III. Critical thinking [5 pts]

1. Circle should enclose only Adam's Pizza, Betty's Hamburgers, Emily's Hamburgers, Fred's Pizza, and Geoff's Pizza.
2. As noted in the 2010 Horizontal Merger Guidelines, section 4.1.1, a market is defined as the smallest group of products that, if monopolized, could result in a price increase. The price of pizza in Des Moines could not be increased without increasing the price of hamburger simultaneously, because otherwise people would switch to hamburgers, according to the information given in the problem. So hamburger sellers in Des Moines belong in the definition of the market. However, the price of pizza in Des Moines could be increased without increasing the price of pizza in West Des Moines, because no one would drive to West Des Moines for pizza, according to the problem. So pizza sellers in West Des Moines do not belong in the definition of the market.

Version B

I. Multiple choice [2 pts each: 8 pts total]

(1)c. (2)b. (3)b. (4)c.

II. Problems

(1) [Merger statutes: 15 pts]

1. Clayton Act, Section 7.
2. Celler-Kefauver Act.
3. Hart-Scott-Rodino Act.
4. Sherman Act, Section 1.
5. Sherman Act, Section 2.

(2) [Welfare tradeoffs of mergers: 36 pts]

1. $3.
2. 18 million.
3. Marginal revenue curve is a line with price intercept at $12 and quantity intercept at 12 million.
4. $7.
5. 10 million.
6. 5/7 = 0.7143.
7. $56 million.
8. $40 million.
9. $16 milllion.
10. $10 million.
11. decrease.
12. $6 million.

(3) [HHI and merger guidelines: 18 pts]

1. 2043.
2. moderately concentrated.
3. 2691.
4. highly concentrated.
5. (i) is "presumed to be likely to enhance market power."
6. The post-merger HHI is greater than 2500 and the change in the HHI caused by the merger is greater than 200 points.

(4) [Conglomerate mergers: 18 pts]

1. No economies of scale.
2. AC(50)=$150 and AC(100) = $180, so average cost increases with quantity.
3. Yes economies of scale.
4. AC(100)=$200 and AC(180) = $450, so average cost decreases with quantity.
5. Yes economies of scope.
6. Total cost of producing computers and smartphones separately in different firms is greater than the total cost of producing them together in the same firm. For example,
   TC(100 bicycles) + TC(50 unicycles) = $27,500.
   TC(100 bicycles, 50 unicycles) = $25,000.

III. Critical thinking [5 pts]

Same as Version A.

[end of answer key]