Answers to each of the following problems will be evaluated based on accuracy, completeness and clarity. Unsupported answers will receive no credit. Any assumptions you make in answering the questions below should be clearly stated.
1. True, false, or uncertain: If some firms in an industry have high marginal costs, cH, and others have low marginal costs, cL < cH , then a merger between two low-cost firms is always more profitable than the merger between a low-cost and a high-cost firm.
2. A monopoly sells to consumers with inverse demand given by p(Q) = 100 - Q and technology T C(Q) = 5Q. Characterize the firm's profit-maximing behaviour when they are permitted to set a two-part tariff.