Question

1) (25 points) Suppose monopoly input manufacturer sell a good to 3 retailers. The retailers face the following demand Q = 100-P and has no cost except the cost of buying the inputs from the manufacturer. The manufacturer has a constant marginal cost equal to 5 but no other costs. After the manufacturer sets a unit price for the input, 3 retailers compete in quantities Calculate the deadweight loss. Now suppose the manufacturer vertically merge with one of the retailers and the merged firm's cost level becomes 0. Cal- culate the deadweight loss that would arise in this case and discuss the change in deadweight loss brought by the merger.

Please explain clearly. It's Industrial Economics related question.

Answer 1

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-?*53 pvice per vnit P pofdb the rtoile 7ctafly1583 52.5 fo marginal Cpkt 52.5

mon、m,Zed and Yn a Compeve Strure ou, te manuf actueY oaA a PE MC Q95 iUm vm and a moncpu 54.5) 42.5

5 95- 100 -P The difevence toren pice level if tne Mony L75 F 045 45 c 28 125

he nmonopoly, ue c 00-2QD Q 50

50: P merger (95-50) 45 re ceo 054-5 to12.5

chad weight toes to the Society fA too a^ tre