Suppose that the only two firms in an industry face the market (inverse) demand curve p=160-q. Each has a constant marginal cost equal to 16 and no fixed costs. Initially, the two firms compete as Cournot rivals (Chapter 11) and each produces an output of 48. Why might these firms want to merge to form a monopoly? What reason would antitrust authorities have for opposing the merger? (Hint: Calculate the price, profits, and total surplus before and after the merger) Suppose that each firm has fixed costs, F, of $2,000 that are avoidable if a firm does not produce. The firms would favor the merger because combined profit would increase by $__ and the profit-maximizing price would increase by $___nothing. (Enter your response rounded to two decimal places) Antitrust regulators might not oppose the merger because, although consumer surplus would decrease by $____, the total surplus would increase by $___. (Enter your response rounded to two decimal places)
Suppose that the only two firms in an industry face the market (inverse) demand curve p=160-q. Each has a constant marginal cost equal to 16 and no fixed costs. Initially, the two firms compete as Cournot rivals (Chapter 11) and each produces an output of 48. Why might these firms want to merge to form a monopoly? What reason would antitrust authorities have for opposing the merger? (Hint: Calculate the price, profits, and total surplus before and after the merger) Suppose that each firm has fixed costs, F, of $2,000 that are avoidable if a firm does not produce. The firms would favor the merger because combined profit would increase by $__ and the profit-maximizing price would increase by $___nothing. (Enter your response rounded to two decimal places) Antitrust regulators might not oppose the merger because, although consumer surplus would decrease by $____, the total surplus would increase by $___. (Enter your response rounded to two decimal places)
