Consider a standard Cournot oligopoly with n ≥ 2 identical firms, P(x) = a - bX, X ≥ 0, and C(x) = cx2. a. Find the Cournot equilibrium output and profit. b. If m firms wish to merge, what would be their cost function, assuming that they can use all their m production plants but that they otherwise do not have any eciency gains as a result of the merger? c. Given the cost function from part b, when is an m-firm merger profitable to the merged entity? To the non merging firms? d. Give a precise economic intuition explaining your answer relative to the usual (linear cost) case.

Consider a standard Cournot oligopoly with n ≥ 2 identical firms, P(x) = a - bX, X ≥ 0, and C(x) = cx2. a. Find the Cournot equilibrium output and profit. b. If m firms wish to merge, what would be their cost function, assuming that they can use all their m production plants but that they otherwise do not have any eciency gains as a result of the merger? c. Given the cost function from part b, when is an m-firm merger profitable to the merged entity? To the non merging firms? d. Give a precise economic intuition explaining your answer relative to the usual (linear cost) case.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter10: Monopolistic Competition And Oligoply

Section: Chapter Questions

Problem 9SQP

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