Merger and acquisition of firms operating under cournot comp
Course:- Microeconomics
Reference No.:- EM1359

Assignment Help
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?


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

Ask Question & Get Answers from Experts
Browse some more (Microeconomics) Materials
Shoes For Less (SFL) hires you to estimate the demand for their shoes, and you estimate this to be: Describe  the difference in the results between your results and those of o
Discuss trends significant to the industry and company and discuss key areas of uncertainty related to trends or events that potentially could impact the company's strategy.
Arbitron Media Research Inc. conducted a study of the iPod listening habits of women and men. One facet of the study involved the mean listening time. It was discovered that t
Based on the assumption that each family spends $100 plus one-half of its total income each week, what is the total weekly consumption spending of a poor family prior to ins
Due to the changing environment and external triggers, contingency planning is necessary. What qualities make a future issue a “trigger”? Consider you are on the strategic pla
Much has been made of the concept of experimenter bias, which refers to the fact that for even the most conscientious experimenters there seems to be a tendency for the data
The standard theory of monopolistically competitive firms maintains that, in the long run, such firms will operate at less than full capacity. Does this result depend on wheth
The presumption of efficiency for capitalism is based on the model of perfect competition. Explain the assumptions underlying the model of perfect competition. Provide an exam