+1-415-670-9189
info@expertsmind.com
Merger and acquisition of firms operating under cournot comp
Course:- Microeconomics
Reference No.:- EM1359




Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Microeconomics

Question: Suppose firm 1 and firm 2 merge. Call the new firm A. It has output xA and profit πA. Suppose there is Cournot competition after the merger. For now, we assume that the marginal cost of Firm A, the merged firm, still is 40 (the same as firm 3).

e) Compute quantities for both the merged firm and firm 3. Also, compute the market price and profits.

f) Is the total quantity produced (and sold) larger or smaller than before?

g) Compare the initial sum of profits of the two individual firms, π1 + π2, with the profits of the merged firm, πA. Explain and comment.

If the merged firm were able to exploit economies of scale it would affect costs, maybe even marginal costs. Assume that the marginal cost of the merged firm (only!) was not 40, but 30.

h) Is the merger profitable in this case? What happens to the non-merged firm's (firm 3) profits compared to the original situation with 3 firms?

i) Can you say something about how much reduction in the merged firm's MC must be able to achieve for the merger to become profitable?

j) Relate this to a real-world merger. Are they usually profitable? Can you give examples? Are there other things to consider than marginal cost?

Summary:

Questions related to the previous scenario of 3 firms is continued in this answer. The question is that if two firms in the Cornout market merge into one firm, what would the merger result in? how much of marginal cost would prevail in the market, etc are answered in a detailed in manner in the solution.




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Microeconomics) Materials
How would you predict these would impact the value of the dollar on foreign exchange markets - How, in turn, would these low interest rates impact our balance of trade? Explai
1 a. A restaurant has three types of customers. A third of its customers, Type A, are willing to spend $5 on an appetizer but only $2 on a dessert. Another third, Type B, are
Economists argue at what point of the Business Cycle our country is now situated. Utilizing the concepts of leading, coincident and lagging indicators and Unemployment rate th
Draw the Normal Form of the game Alice and Bob are playing, be sure to label the game completely - Does either player have a dominant strategy and What is the marginal cost fo
A family takes out a 30-year fixed $300,000 mortgage with a rate of 5.25 %. After 8 years they decide to refinance the balance of the loan with another 30-year fixed mortgag
McDonalds, Starbucks, and a bagel shop in Detroit have all been successfully sued by customers who spilled hot coffee on themselves. The businesses claim their product was ser
Explain the process of revenue at NSU, focusing on the relationship between the increased revenue from students enrolling at NSU despite the higher tuition and the lost reve
Industries (markets) evolve and change over time. Many industries start out competitive (many businesses) but over time some begin to emerge as dominate ones in the industry