The demand for carpet-cleaning services is P=130-Q. There are 20 identical firms that clean carpets. The marginal cost for cleaning a carpet is $30. Firms in this industry compete in quantities. a. Show that in a Cournot equilibrium the profit of each firm is $22.67. b. Now suppose that six firms in the industry merge. Show that the profit of each firm in postmerger equilibrium is $39.06. Show that the profit earned by the merged firm is insufficient to compensate all the owners who owned the six original firms and earned profit from them in the pre-merger market game. c. Show that if fewer than 17 firms merge, the profit of the merged firm is not great enough to buy out the owners of the firms who merge.

The demand for carpet-cleaning services is P=130-Q. There are 20 identical firms that clean carpets. The marginal cost for cleaning a carpet is $30. Firms in this industry compete in quantities. a. Show that in a Cournot equilibrium the profit of each firm is $22.67. b. Now suppose that six firms in the industry merge. Show that the profit of each firm in postmerger equilibrium is $39.06. Show that the profit earned by the merged firm is insufficient to compensate all the owners who owned the six original firms and earned profit from them in the pre-merger market game. c. Show that if fewer than 17 firms merge, the profit of the merged firm is not great enough to buy out the owners of the firms who merge.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.6P

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