expenses that worked out to about $23 per frame. The consumer's demand curve for sunglasses is Q = 1,DDU,DDD 2,DDD*P, i.e., if the Sunglass Hut charges a price of $P for the eyewear, then the above gives the number of units sold per year. a. Suppose Luxottica decides to charge the Sunglass Hut a wholesale price of W=$ZUU per frame. 'What price does the Sunglass Hut set? b. Luxottica hires distinguished Kellogg students as consultants and decides to charge the Sunglass Hut W=$28 per frame (this is the optimal price). What price does the Sunglass Hut charge consumers? How many units are sold? What is the profit of the Sunglass Hut? 'What is the profit of Luxottica? c. Suppose Sunglass Hut is expected to make the above profit annually in perpetuity. On top of these expected profits, Sunglass Hut owns $lDDm of other assets. Using a discount rate of 10%, would you recommend to the shareholders of the Sunglass Hut to accept the acquisition offer, which values the company at $4Um? d. Suppose the acquisition occurs and now Luxottica owns both the production and retail side of the business. If the retail demand curve remains unchanged, and Luxottica's marginal costs are $1DD (sat) in production and $2 in retail), what price does Luxottica want to set now? What are its profits? Was the deal worth it? e. Given the prots of the two firms before the merger and Luxottica's profits after it, can you quantify the externality that the independence of Sunglass Hut had on the eyewear producers (i.e., the profit synergies which will be achieved after the merger)? Are consumers better off before the merger, or after