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
Explain how the Keynesian model of economics was applied to the economic crises of the 1970's. Was it effective? Explain. Explain how government creates demand to correct mark
What was the purpose of this symbolic gesture? How can the Fed's decision to use expansionary monetary policy in the future affect the short-run response of the economy?
An explanation for my labor economics course A household will tend to substitute goods for time in the production of commodities if: a. a household member's market wage increa
Discuss arguments for AND against the use of the Internet as an intelligence gathering tool? With that in mind, how can domestic intelligence gathering become more efficient
Omega Travel competes in the highly competitive market for travel. Consumers know that Omega has the best agents in the industry and offers superior service. Nonetheless, Omeg
Suppose that Central Bank A's mission is to keep price level stable while Central Bank B's mission is to keep unemployment rate stable. These goals apply both to the short a
Determine whether the firm is operating efficiently, given that its objective is to minimize the cost of producing the given level of output. Determine what changes (if any)
Identify any specific parallels between Shinto beliefs and practices on the one hand, and those of indigenous sacred ways on the other? By contrast, which (if any) elements