Consider a company A operating in an oligopoly which has a market share of 20% and a unit cost of $50. It currently sells at a price (P) of $52.9 with a price elasticity of demand of -3.5. This company will merge with company D, so that market share will reach 50%. Estimate impact of this operation on selling price under 2 scenarios: (a) With economies of scale, given the merger. Cost reduction of 15%. b) Without economies of scale, constant cost of 50%. c) How much does market power of merged company change, considering with and without economies of scale?

Consider a company A operating in an oligopoly which has a market share of 20% and a unit cost of $50. It currently sells at a price (P) of $52.9 with a price elasticity of demand of -3.5. This company will merge with company D, so that market share will reach 50%. Estimate impact of this operation on selling price under 2 scenarios: (a) With economies of scale, given the merger. Cost reduction of 15%. b) Without economies of scale, constant cost of 50%. c) How much does market power of merged company change, considering with and without economies of scale?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Monopoly

Section: Chapter Questions

Problem 1PA

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