Consider an upstream monopolist which sells woolWto downstream monopolist B which producesMaple Leaf hatsH. Suppose that the demand for Maple Leaf hats is represented by the inversedemand curveP(H) = 100H. Monopolist B produces hats according to the following productiontechnologyH=14W, i.e. 4 units of wool yields 1 Maple Leaf hat. Suppose that both firmsare monopolists in their respective markets. Furthermore, monopolist A harvests wool with thefollowing cost structureC(W) = 2W2+ 2W, while monopolist B manufactures Maple Leaf hatswith the following cost structureC(H) = 10H.

1. (30 points) Find the price of woolPW, the price of Maple Leaf hatsPH, the consumer surplus,and the profits for both firms.

2. (20 points) Suppose both firms vertically integrate. Find the price of Maple Leaf hatsPH,the consumer surplus, and the profits for the integrated firm.