Reference no: EM133442391

Problem 1

You will be using the new formulas from the chapter: 4 Firm Concentration Ratio and Herfindal-Hirschman Index (HHI).

In 1986 assume Pepsi announced its intention to buy Dr Pepper, and Coca-Cola proposed buying 7-Up. The table below shows the market shares held by the soft-drink firms in 1986. Assume that the remaining 14% of the market is composed of 14 individual firms, each one has a market share of 1%.

1. Calculate the 4 Firm Concentration Ratio in 1986 using the information in the table above.
2. Calculate the Herfindahl-Hirschman Index (HHI) for the industry as it was structured in 1986.
3. Calculate a new post-merger HHI if PepsiCo were allowed to buy Dr.Pepper.
4. Calculate a new post-merger HHI if Coca-Cola were allowed to buy Dr 7-Up.
5. How would you expect the Justice Department to respond to each merger considered separately? To both? (By the way, the proposed mergers were challenged, and neither was completed back then.)

Problem 2

Take table 9.5 and expand it to have a total of 7 columns.                   

Once your table is complete then use the three-step process identified in the last few chapters to identify:

a. the profit maximizing level of output. If you can not find a point where MR exactly equals MC then come as close as you can with MR still being slightly higher. The minute MR < MC then you are losing money.

b. the price for the product. This must be a price from your table.

c. the amount of profit. This amount should be found using TR - TC.