Wine monopoly and duopoly. Note that parts f) and g) do not depend on the other parts and could be completed before or after parts a) to e). Two different boutique wineries supply two towns: town A and town B. Winery 1 supplies town A and Winery 2 supplies town B. Both wineries have a constant marginal cost c = 20. Assume that consumers are indifferent between the wines from different wineries and that they purchase wine only in the town they live. Demand for wine in town A is given by PA = 409A; the demand for wine in town B is given by PB = 70 - 9B. = a) [3 points] Find the price p₁, quantity sold q₁, and profit ₁ of Winery 1 in town A. b) [3 points] Find the price p2, quantity sold q2, and profit 2 of Winery 2 in town B. c) [3 points] Assume that the two wineries decide to merge (i.e. to unite) and become Winery Co. The Winery Co sells wine in both towns at the same price (i.e. the price of wine in town A is the same as the price of wine in town B). The marginal cost is still equal to 20. What is the total demand for wine from the residents of both towns? Find the price PM, quantity soid in each town (qA and qB) and the total profit TM of Winery Co. d) [1 points] Compare profits made by Winery Co to the sum of profits of both wineries before merger. Is it a successful merger? Why or why not? What is the economic reason for this result? Explain.
