Quiz 7 Version A

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

Quiz 7 Version B

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

Test 7 Version A

(1) [Types of mergers: 8 pts]

1. Conglomerate merger for market extension.
2. Horizontal merger.
3. Conglomerate merger for product extension.
4. Vertical merger.

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

1. $4.
2. 10 thousand.
3. Marginal revenue curve has vertical intercept at $14, horizontal intercept at 7 thousand, and slope = 2/(1 thousand).
4. $8.
5. 6 thousand.
6. 0.75.
7. $32 thousand.
8. $24 thousand.
9. $8 thousand.
10. $12 thousand.
11. increase.
12. $4 thousand.

(3) [Statutes: 10 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.

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

1. 1950.
2. Moderately concentrated.
3. 2250.
4. Moderately concentrated.
5. (ii) "raises significant competitive concerns."
6. The postmerger HHI is greater than 1500 (but less than 2500) and the change in the HHI is greater than 100.

(5) [Conglomerate mergers: 18 pts]

1. No.
2. AC(50 tables) = $100 and AC(100 tables) = $120, so average cost curve for tables slopes up.
3. Yes.
4. AC(100 chairs) = $50 and AC(200 chairs) = $45, so average cost curve for chairs slopes down.
5. Yes.
6. The total cost of producing tables and chairs together is cheaper than the total cost of producing them separately. TC(50 tables,100 chairs) = $9,000, which is less than TC(50 tables) + TC(100 chairs) = $10,000. Similarly for TC (100 tables,100 chairs), for TC(50 tables,200 chairs), and for TC(100 tables,200 chairs).

Critical thinking [10 pts]

1. As a government attorney opposing this merger, I would want to show that the postmerger HHI and the change in the HHI caused by the merger were both large. So I would propose a narrow definition of the market, including only office-supply superstores like Office Depot and Staples.
2. As an attorney for Office Depot defending this merger, I would want to show that the postmerger HHI and the change in the HHI caused by the merger were both small. So I would propose a broad definition of the market, perhaps including any physical store that sells office supplies (including Walmart and Target) as well as online sellers of office supplies (including Amazon).

Test 7 Version B

(1) [Types of mergers: 8 pts]

1. Vertical merger.
2. Conglomerate merger for market extension.
3. Horizontal merger.
4. Conglomerate merger for product extension.

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

1. $3.
2. 14 thousand.
3. Marginal revenue curve has vertical intercept at $10, horizontal intercept at 10 thousand, and slope = 1/(1 thousand).
4. $6.
5. 8 thousand.
6. 2/3 = 0.667.
7. $33 thousand.
8. $24 thousand.
9. $9 thousand.
10. $8 thousand.
11. decrease.
12. $1 thousand.

(3) [Statutes: 10 pts]

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

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

1. 1350.
2. Unconcentrated.
3. 1450.
4. Unconcentrated.
5. (iii) "unlikely to have adverse competitive effects."
6. The postmerger HHI is lessthan 1500.

(5) [Conglomerate mergers: 18 pts]

1. Yes.
2. AC(50 tables) = $140 and AC(100 tables) = $120, so average cost curve for tables slopes down.
3. Yes.
4. AC(100 chairs) = $40 and AC(200 chairs) = $45, so average cost curve for chairs slopes up.
5. No.
6. The total cost of producing tables and chairs together is greater than the total cost of producing them separately. TC(50 tables,100 chairs) = $12,000, which is greater than TC(50 tables) + TC(100 chairs) = $11,000. Similarly for TC (100 tables,100 chairs), for TC(50 tables,200 chairs), and for TC(100 tables,200 chairs).

Critical thinking [10 pts]

• Same as Version A.

[end of answer key]