1. Chapter 15, Problem 3. There are 4 firms in a market. The inverse demand for the product is P=100-Q. All firms make i

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1 Chapter 15 Problem 3 There Are 4 Firms In A Market The Inverse Demand For The Product Is P 100 Q All Firms Make I 1 (158.45 KiB) Viewed 16 times

1. Chapter 15, Problem 3. There are 4 firms in a market. The inverse demand for the product is P=100-Q. All firms make identical product. The production costs for three firms are C(q)=20q. Assume that if two firms merge, the merged firm will be able to act as an industry leader, making its output decision before the nonmerged firms make theirs. a. Confirm that a merger between two firms, firm 1 and 2 will be profitable. What has happened to the profits of the non merged firms and to the product price as a result of this merger? b. Confirm that the two remaining firms also want to merge and join the leader group given that the leaders act as Cournot competitors with respect to each other. What does this second merger do to the market price? (hint: the merger will create a leader group containing two firms and a follower group containing none)