About incentive for firms to engage in horizontal mergers

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Reference no: EM131006532

There are n identical firms that produce microprocessor chips. Market demand is P = 1500 − Q and the cost to produce each chip is $300.

a. Find the Cournot Equilibrium output by each firm, and the market price.

b. Now suppose there are n = 3 firms in the market. How much output does each firm produce? What is the market price? How much profit does each firm earn?

c. Two of the three firms merge, so that there are now n = 2 firms. How much output does each firm produce? What is the market price? How much profit does each firm earn?

d. How much profit did the two firms jointly earn when there were 3 firms in the market?

e. How much profit does the merged firm make?

f. What does this problem tell us about the incentive for firms to engage in “horizontal mergers”?

Reference no: EM131006532

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