Assume the following facts concerning the horizontal merger model developed by Oliver Williamson. Assume that demand is P=120–2QP=120-2Q, where P and Q refer to price and output, respectively. The post-merger market structure is a monopoly. The pre-merger total cost function is TC = 50Q and the post merger total cost function is TC = 40Q. a. Based on this information, determine the value of the efficiency gains due to the merger. b. Based on this information, determine the value of the deadweight loss due to the merger. c. Should the Department of Justice accept or deny the merger?

Assume the following facts concerning the horizontal merger model developed by Oliver Williamson. Assume that demand is P=120–2QP=120-2Q, where P and Q refer to price and output, respectively. The post-merger market structure is a monopoly. The pre-merger total cost function is TC = 50Q and the post merger total cost function is TC = 40Q. a. Based on this information, determine the value of the efficiency gains due to the merger. b. Based on this information, determine the value of the deadweight loss due to the merger. c. Should the Department of Justice accept or deny the merger?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Which of the following statements is TRUE? A) A monopoly cannot set price and quantity such that the point lies above the demand curve. B) A monopoly can charge whatever it wants. C) Profit maximization occurs by setting price first. D) Both A and B. The more inelastic the demand curve, a monopoly A) will have a smaller Lerner Index. B) will face a lower marginal cost. C) will earn less profit. D) will lose fewer sales as it raises its price.
Which statement best explains why a city water system has a natural monopoly structure? A water system may set prices at any level it wants to maximize profits and acts in its own interest. A water system requires so little innovation that there is little incentive for businesses to compete for the market. The cost for a competing water system to enter the market is so high that the return on investment is too low. The marginal cost to additional consumers is extremely high compared with average cost for the water system.
Consider any market that has an inverted demand curve given by P = 200-0.6Qd, where P is the market price and Qd is the quantity demanded. Whatever the market structure, it is known that the production of this good takes place through Cmg = CVme= $80.00. Consider that the production of this market can be done by a monopolist company or by two duopolists. If it is a duopoly, the companies will organize themselves as a Stackelberg duopoly and will each have a fixed cost of $1,500.00. If it is a monopoly, this company will have a lot of expenses with licenses with the government, as it is the only one to explore the resource. In this way, your fixed costs would reach $5,000.00. Given this information, evaluate the best balance for this market, from the point of view of consumers.
100 90 80 70 60 50 40 АТС MC 30 20 10 MR D 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) PRICE (Dollars per subscription)
A movie theater in Ellentown, College Cinema, specializes in movies for college students. College Cinema is considered a monopoly in the region, and it serves two groups of moviegoers, LeTall University students and Livayette College students. LeTall students' demand function for movie tickets is QL=20-pL, and Livayette students' demand function is Qv=30-pv. The movie theater incurs zero marginal cost for serving additional customer, but there is a fixed cost of showing a movie at 20. 1. You are the marketing manager of College Cinema. The finance manager, who is your enemy in the company, suggests that charging different prices to LeTall and Livayette students would certainly be a profitable move. There is only so much the finance manager knows about marketing. As the marketing manager, you know that it is costly to implement the group price discrimination, because the company needs to hire additional staff to monitor and identify the student groups by screening their IDs. You…
35. Consider a publicly owned nondiscriminating monopoly whose marginal cost is 10, whose average cost is 10 +90/Q, and whose demand curve is P = 100 –-Q, where P is price and Q is quantity. The government instructs the firm to produce a quantity such that MC = P. Which of the following statements is true? %3D (a) The firm makes a profit of 90 (b) The firm breaks even (c) The firm requires a subsidy of 90 (d) The firm makes a profit of 100 (e) The firm requires a subsidy of 100
Examine three (3) characteristics of firms that operate as a monopoly.
2) Suppose that consumers of a good can be represented by the demand function Q (P) = 50 - P. The good is manufactured by an upstream monopolist with cost function C (q) = Q2 + 2Q + 10. A downstream monopolist resells the good to consumers (without further production activity) (a) Determine the industry outcome, profits and consumer surplus. (b) Consider a vertical merger. Compare the industry outcome, profits and consumer surplus to part (a). (c) Suppose the upstream monopolist franchises the product to the downstream firm. Which two - part tariff should the upstream monopolist choose? Determine the profits of the firms.
we had two buyer types for pharmaceuticals. One with inverse demand P = 8 – 0.25Q, and one with inverse demand P = 4 – 0.1Q. Marginal cost of the monopolist was constant and equal to 2. If the monopolist cannot price discriminate (so they charge a single price to everyone), show whether their profits are higher serving only the high demand market, or serving both markets. Show whether consumer surplus is higher or lower with or without price discrimination at the monopolist’s optimal solution in either case.
Suppose a monopolist faces two types of consumers: one with demand curve Q1 = 500 – 2P, and the other with demand curve Q2 = 1500 – 3P. Suppose the firm monopolist knows these demand curves but cannot tell the difference between an individual consumer of type 1 versus type 2. They can charge only one price to the aggregate market demand (horizontal sum across quantities of the two buyer types). Construct the market demand curve (it may have a kink), and calculate the monopolist’s optimal quantity and price. Illustrate this on a graph. Do they serve both markets or do they price out the low demand type? Illustrate the monopolist’s optimal second-degree price discrimination strategy on a graph, and calculate the price-quantity bundles offered to the market under this strategy. Assume the monopolist’s marginal costs are constant and equal to 100. Suppose the monopolist can segment the market between the two types directly and engage in price discrimination. What are the monopolist’s…
Consider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services and the company's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. 100 90 80 70 60 50 40 30 ATC MC 20 10 MR 0 0 2 4 6 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints. PRICE (Dollars per subscription)
The barrier to entry that protects natural monopoly is Question 2 options: Better products. Large economies of scale. Large economies of scale. None of the above.