2. Consider n identical firms, which produce a perfectly homogenous good at constant marginal cost c....

 

Transcribed Image Text:

2. Consider n identical firms, which produce a perfectly homogenous good at constant marginal cost c. The market demand is given by p = a - Q, where Q is the total output produced in the industry. The strategic variable of the firm is output, which means this is a Cournot game. a) Find the equilibrium outputs and profits at a pre-merger situation, which is when all the n firms are independent and symmetric! Use nq = =19; and be careful with its derivation! b) Consider now a merger between m + 1 firms and find the equilibrium output and profit for each independent firm! c) Compare the profits from parts (a) and (b)! Who gains from the merger? d) Show that a merger to monopoly is always profitable for the merging firms! Use n = m + 1! 2. Consider n identical firms, which produce a perfectly homogenous good at constant marginal cost c. The market demand is given by p = a - Q, where Q is the total output produced in the industry. The strategic variable of the firm is output, which means this is a Cournot game. a) Find the equilibrium outputs and profits at a pre-merger situation, which is when all the n firms are independent and symmetric! Use nq = =19; and be careful with its derivation! b) Consider now a merger between m + 1 firms and find the equilibrium output and profit for each independent firm! c) Compare the profits from parts (a) and (b)! Who gains from the merger? d) Show that a merger to monopoly is always profitable for the merging firms! Use n = m + 1!

Answer rating: 100% (QA)

Answer a In a premerger situation the equilibrium outputs and profits of the n firms are given by q ac2n and ac24n b In a situation where there is a m... View the full answer