Competitor from changing its output

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Reference no: EM138922

Q. Client 2 is in the express small package industry. Limit your recommendation and supporting analysis to 250 words for this client.
Currently, market demand for Client 2's industry the output for this market Q market is met by the demand for the client's product (Q client) and the competitor's product (Q competitor). The Market demand is P market = 70.00 - 0.050 (Q market). The client recognizes that their competitor's quantity produced changes when the client operates at different output levels.

The client would like to know what output level should it select that will keep the competitor from changing its output, i.e., at what output level (for the client and the competitor) will there be no tendency for change. At that output level, what will the profits be for the client and the competitor? We have every reason to believe, the client's main competitor and the client face a similar marginal costs of $10.00 per unit and fixed costs of $4,000.

The Client also would like to know if it should merge with the competitor. Assuming the merger will pass the scrutiny from the DOJ, what do you suggest and why? And if there is a merger, can we suggest a pricing scheme that would offer the higher profits than those earned with a single price? If so, what is it and why?

Reference no: EM138922

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