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Suppose that there are three firms, firm 1, firm 2 and firm 3, producing differentiated widgets. The demand curves facing each firm are symmetric and are given by the following equation:

Qi  = 250 -20Pi +5Pj + 5Pk.

Each firm has a marginal cost equal to 25. The profit function of firm i is given by:

Πi = (Pi - 25)(250 - 20Pi +5Pi + 5Pk), (i, j,k)=(1,2,3)

  • Solve for the Nash equilibrium prices.
  • Suppose that firms 1 and 2 decide to merge.
  • If there are no cognizable efficiencies, calculate the UPPI for an increase in P1.
  • Suppose that the merger makes possible a reduction in marginal cost of 10 percent with products 1 and 2 post merger. Calculate the UPPI for an increase in P1.
  • Calculate the equilibrium prices after the merger, assuming 10 percent cognizable efficiencies for products 1 and 2.

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M91995551
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