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In an industry there are three firms producing a homogeneous product. Let qi denote the output level of firm, i= 1, 2, 3, and let Q denote the aggregate industry-production level. That is, Q = q1 + q2 + q3. Assume that the demand curve facing the industry is p = 100 - Q. Solve the following problems:

(a) Find the Cournot equilibrium output and profit level of each firm.

(b) Now suppose that firms 2 and 3 merge into a single firm that we call firm4. Calculate the profit level of firm 4 under a Cournot market structure.

(c) Do firms 2 and 3 benefit from this merger?

(d) Now suppose that firm 1 merges with firm 4. Does firm 4 benefit from the merger with firm 1?

(e) Explain why the first and the second mergers yield different results regarding the profitability of mergers.

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M91945741

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