All problems consider market containing four identical firms

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Background info for question below: "For all problems consider a market containing four identical firms, each of which makes an identical product. The inverse demand for this product is P = 100?Q, where P is price and Q is aggregate output. The production costs for firms 1, 2, and 3 are identical and given by C(qi)= 20qi (i= 1,2,3), where qi is the output of firm i. This means that for each of these firms, variable costs are constant at $20 per unit. The production costs for firm 4 are C(q4)= (20+ ?)q4, where ? is some constant. Note that if ? > 0, then firm 4 is a high-cost firm, while if ? < 0, firm 4 is a low-cost firm (|?| < 20). Note also that Q is the total outputs in the market.Assume that the firms each choose their outputs to maximize profits given that they each act as Cournot competitors."

Q) Assume that firms 1 and 2 merge and that all firms continue to act as Cournot competitors after the merger. Confirm that this merger is unprofitable.

Reference no: EM13771217

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