Problem 1: Antitrust Analysis of a League Merger. Demand for outdoor lacrosse teams in the United States is given by:

P (Q) = 240 2Q where Q is the total number of lacrosse teams and P is the average revenue generated from

the last team. Starting a new team has a constant marginal cost MC = 180

Suppose that Major League Lacrosse (M) and the Premier Lacrosse League (P) are the only two lacrosse leagues in the region, and they engage in Cournot competition by each simultaneously choosing to produce a certain number of teams, qM and qP . The market quantity is thus given by Q = qM + qP .

a) Find each league's best response function. b) Find the Nash equilibrium number of teams produced by each league.

c) Find the market price and the market quantity. d) Find total profits in the market and consumer surplus.