Consider an upstream monopolist A which sells wood W to a downstream mo- nopolist B which produces tables T. Suppose that the demand for tables is represented by the inverse demand curve P(T) 300 2T. Monopolist B pro- duces tables according to the following production technology T- W (ie 2 units of wood yields one table). Suppose that both firms are monopolists in their respective markets. Furthermore, monopolist A harvests wood with the following cost structure C(W)while monopolist B manufacturers tables with the following cost structure C(T) 5T10. 1. Find the price of wood Pw, the price of tables Pr, the consumer surplus and the profits for both firms. (10 points) Note: You should draw a graph to get an idea of the upstream firm's problem but then stick with equations/intuition for the downstream firms problem.] 2. Suppose both firms vertically integrate. Find the price of tables Pr, co sumer surplus in the table market and the profits of the firm.
