Smith, Inc. and Wesson, Inc. both produce utility pumps. Figure 1, below, shows the market conditions facing the two firms in the domestic market for these utility pumps. Each firm has constant long-run costs, so that MCo ACo. As competitors in a duopoly, there are a number of models to determine output and prices. Assume that the Bertrand duopoly model applies, so that they both set price equal to their marginal cost. Initial output in this market will be 12,000 per year. This is split evenly between the two firms (e.g., 6,000 per firm), at a price of $375 per utility pump. Price (5) 650 600 550 500 450 400 350 300 250 200 150 100 50 0 2 9 Figure 1: Utility pump market MC-AC MC, AC 6220 D MR . 10 12 14 16 18 20 22 24 26 28 30 32 Pumps per year, thousands Suppose that Smith, Inc. and Wesson, Inc. form a joint venture, Smith & Wesson, Inc., whose utility pumps replace the output sold by the parent companies in the domestic market. Assuming that Smith & Wesson, Inc. operates as a monopolist and that its costs equal MC = AC, what is: (b) The price? (c) The output? (d) Total profit? (e) The resulting deadweight loss from Smith & Wesson, Inc. operating as a monopoly? (f) Assume Smith & Wesson, Inc.'s formation leads to technological advances that yield cost reductions, such that MC = AC. Compared to the original equilibrium (in (a)), what is the net effect of Smith & Wesson, Inc.'s formation on welfare? (Calculate the new total surplus (consumer surplus + producer surplus) and take the difference from your answer to (a).) (g) Assume Smith & Wesson, Inc.'s formation leads to wage concessions from company employees, such that MC = AC. Compared to the original equilibrium, what is the net effect of Smith & Wesson, Inc.'s on welfare? (h) Assume Smith & Wesson, Inc.'s formation leads to changes in work rules that lead to higher worker productivity, such that MC = AC. Compared to the original equilibrium, what is the net effect of Smith & Wesson, Inc.'s formation on welfare? [C