Economics Monopoly & Mergers


Imagine that you are advising a small new car dealership. They ask:
A) given the information below, what is the best price they should put on all the cars,
assuming every buyer pays the same price
and how much profit will they make?

B) is there a better way to make profits and how much profit could they make? why might this strategy be difficult to use? The firm can’t change their costs. But they could use a different pricing scheme, not charging every customer the same price.

Fixed cost for business is $4000

Variable cost is $20,000 for each car they get from the manufacturer.

They anticipate the following customers.

Ms. Rich would pay up to $30,000

Mr. Upper Middle would pay up to $26,000

Ms. Middle would pay up to $22,000

Mr. Lower Middle would pay up to $18,000

Ms. Poor would pay up to $16,000

Question 2

Complete a table for Q, Price, TC, MC, MR and profits.

Start the price at the number of letters in your first and last names combined for Q = 1, (USE 11 LETTERS) and then reduce the price as Q increases. (You are price-making monopoly)

For costs, begin with TC = 6 at Q = 1, then you may use any numbers you like for costs. You may need to play around with the numbers to make this work out.

Show that MR = MC at profit maximization.

Question 3

review Monopoly and Antitrust Policy.

Then based on the following case study, what would you recommend as the best policy: should this merger be allowed? I would like you to think through, based on what we have studied, should this merger have been permitted/ Concepts you may want to use include:

The HHI index
Economies of scale
Monopoly profits
Oligopoly firm behavior
Your decision will include reference to the data for ice cream market shares. Note that data are available for the premium ice cream market (product with a high fat content) and the more inclusive all store-bought ice cream market. Also, note that common brand names for ice cream—Breyers, Ben&Jerry’s and Haagen-Daz—are manufactured by corporates with other names.

Choose from the following:

A) The merger should be permitted with no additional recommendations.
B) The merger should not be permitted at all.
C) The merger should be permitted with minor limitations (specify the limitations).
D) The merger should be permitted with major limitation (specify the limitations).

Nestle proposed to merge its U.S. ice cream business with Dreyers’ ice cream.

Current market shares are:

Premium (high fat) ice cream market
Unilever (makes Breyers and Ben&Jerry’s) 41%
Nestles (makes Haagen-Dazs) 37%
Dreyers 19%
Others 3%

Total store-bought ice cream market
Unilever 21%
Dreyers 18%
Blue Bell 6%
Nestle 4%
Wells 3%
Armour 3%
Other brands 45%

This question should be 2-3 Pages

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