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Suppose two firms, each with constant marginal and average cost 41 per unit, supply a market where the equation of the inverse demand curve is p=80-Q=80-(q1+q2):
(a) State the assumptions of the Cournot oligopoly model.
(b) Find Cournot duopoly equilibrium on:
_output
_price
_profit per firm
_consumers' surplus
_net social welfare (total profit plus consumers' surplus) for this market.
(c) Find the same equilibrium values if the two firms merge and as a result of the merger average cost falls to 34 per unit.
(d) Comment on the effect of the merger on consumers and on society as a whole. Show the derivations of your answers.
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