Considerthe following problem. There are five firms producing a homogenous good and competing in quantities simultaneously. The demand function for this good is given by D(p) = 100−p, where p denotes price. The marginal cost is the same for all firms and equals 40 Answer the following questions. (a) Compute the equilibrium quantities and profits of each firm. (b) Now suppose that two of these firms (say firms 1 and 2) want to merge. (The remaining firms stay unchanged.) Merging, however, is costly. To merge, each merging firm has to pay a fixed cost F. Determine the highest fixed cost F that the two firms would be willing to pay in order to proceed with the merger.
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Considerthe following problem. There are five firms producing a homogenous good and competing in quantities simultaneously. The
(a) Compute the
(b) Now suppose that two of these firms (say firms 1 and 2) want to merge. (The remaining firms stay unchanged.) Merging, however, is costly. To merge, each merging firm has to pay a fixed cost F. Determine the highest fixed cost F that the two firms would be willing to pay in order to proceed with the merger.
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