Value of A -1.6

1. [30 points] A monopolist seller controls the distribution of two products: Product one and product two. The demand curve for product one is given by 131 = 10 p1 + pg, and that for product two is D2 = 10 p2 -|~ pl. The seller enjoys economies of scope in distributing the products. The cost of selling both products is C = 2A(q1 + qg) q1q2. :1) Calculate the optimal prices for products one and two. [10 points] 6) Calculate the total welfare. [5 points] Distributing the product creates pollution due to the use of diesel truck transportation. The government invests in an awareness campaign, which succeeds only to affect the demand for product 2, which becomes 02 = :70 322 + pl. c) In this new situation, the monopolist tries to lobby the government. How much would the monopolist be willing to spend to lobby the government against the awareness campaign? [5 points] d) The government reacts to the attempted lobbying by imposing a total tax of q? (i = 1, 2) for the sales of the two products. The demands remain unchanged to DI = 10121 + *pg and Dg = 17 p2 + 331. Will the monopolist nd it protable to sell both products or shut down the distribution of one product? In this case, which product would the monopolist choose to shut down? [10 points]