Show the average-cost curve and firm-specific demand curve

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Satellite Radio Merger. Suppose each of the two satellite radio firms initially has 9.5 million subscribers and generates negative economic profit: Average cost exceeds the $13 price. Assume that the marginal cost is constant at $2 per subscriber. (Related to Application 2 on page 605.)

a. Use a graph to show the average-cost curve and firm-specific demand curve for one of the two satellite firms.

b. Suppose the two firms merge into a single firm. The profit-maximizing price is $13 and the average cost is $12. Illustrate with a graph.

Reference no: EM131134684

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