+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
List the 4 components of the GDP, in descending order of magnitude for the USA (3rd and 4th may change position at certain points in the business cycle, don't worry about them
Total cost and total variable cost are parallel, yet average total cost and average variable cost are not parallel. Demonstrate mathematically that ATC and AVC are not paralle
Let the demand curve for a good be given by P=60-Q. Also, suppose that the marginal and average cost of producing the good is MC=AC=20. For this demand curve, MR=60-2Q. Find t
Suppose you had information on the impact of spending on public education on the productivity of the labor force. You also have information on how education spending re- duc
Instead of asking for a price, you offer to give them the product in exchange for 50% of their cost savings. Describe the information asymmetry, the adverse selection probl
Analyze how production and cost functions in the short run and long run affect the strategy of individual firms and use technology and information resources to research issues
Explain in your own words what you believe are the four most significant characteristics of high-performing project teams. Discuss why you believe each characteristic you chos
Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4