Food service firms buy meat, vegetables, and other foods and resell them to restaurants, schools, and hospitals. US Foods and Sysco are by far the largest firms in the industry. In 2015, these firms were attempting to combine or merge to form a single firm. A news story quoted one restaurant owner as saying: "There was definite panic in the restaurant industry ... when the merger was announced. They know they're going to get squeezed."
a. Analyze the effect on the food service market of US Foods and Sysco combining. Draw a graph to illustrate your answer. For simplicity, assume that the market was perfectly competitive before the firms combined and would be a monopoly afterward. Be sure your graph shows changes in the equilibrium price, the equilibrium quantity, consumer surplus, producer surplus, and deadweight loss.
b. Why would restaurant owners believe they would be "squeezed" by this development?