1. Consider a market with three firms (i = 1, 2, 3), which have identical marginal costs C1 = c2 = C3 = 0. The inverse demand function is given by p = 1– Q, where Q = 91 + 92 + 93. a. Compute the Cournot equilibrium, i.e., the market price and quantity. b. Assume that two of the three firms merge. Show that the profit of merging firms decreases. c. What happens to the market price if all three firms merge compared to part (a)?
1. Consider a market with three firms (i = 1, 2, 3), which have identical marginal costs C1 = c2 = C3 = 0. The inverse demand function is given by p = 1– Q, where Q = 91 + 92 + 93. a. Compute the Cournot equilibrium, i.e., the market price and quantity. b. Assume that two of the three firms merge. Show that the profit of merging firms decreases. c. What happens to the market price if all three firms merge compared to part (a)?
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.3P
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