Suppose two firms, each with constant marginal and average cost 41 per unit, supply a market where the equation of the inverse demand curve is p=80-Q=80-(q1+q2):

(a) State the assumptions of the Cournot oligopoly model.

(b) Find Cournot duopoly equilibrium on:

_output

_price

_profit per firm

_consumers' surplus

_net social welfare (total profit plus consumers' surplus) for this market.

(c) Find the same equilibrium values if the two firms merge and as a result of the merger average cost falls to 34 per unit.

(d) Comment on the effect of the merger on consumers and on society as a whole. Show the derivations of your answers.