Solve the following three (3) problems. Show your work and explain your answers for complete credit. 1) Suppose an industry has 8 firms with the following market shares: 30, 25, 15, 10 5, 5, 5, 5. a. Derive the four-firm concentration ratio b. Derive the HHI. c. Derive the effect of a merger between the fourth largest and fifth largest firms on the HHI. 2) Suppose the total market demand curve is given by P Q 128 2 MC = AC = $20 P is price and Q is quantity. Suppose there are only two firms in the industry, the outcome is the Nash Cournot outcome and each firm has a marginal cost of 20. There are no fixed costs for either firm so average cost is also 20. a. What is the total amount produced and what price is charged before the merger? b. Now suppose the two firms merge to become a monopoly. As a result of the merger, marginal cost drops to 10 c. What is the new price and quantity that is charged, given that the merger results in a monopoly? d. Would you recommend that the merger be blocked by the Justice Department? Why or Why not? Explain your answer carefully. 3) Show all your work to receive full credit. Suppose the market demand for widgets is given by 800 3 Q P T Where Q Q Q T F D QT is total market demand and QF is the quantity supplied by fringe firms, and D Q is the amount produced by the dominant firm. The dominate firm total costs are given by 80 TC Q D D . The competitive fringe's supply curve is given by 200 2 Q P F a) Graph the market demand curve and the fringe's supply curve. Label the vertical intercepts of each. b) Find the dominant firm's marginal and average costs. Show these costs on you graph. c) Find the price at which the fringe firms will supply the entire quantity demanded by the market. Call this price P1 d) Find the price at which the fringe firm will choose to supply no output. Call this price P2 e) Find the dominant firm's residual demand curve for prices between P1 and P2 . Show the residual demand curve on you graph. f) Find the dominant firm's profit maximizing quantity of output. g) Find the price level the dominant firm will set.