Please solve D and E part only.
Thankyou.
Consider three firms, each with cost function C(qi)=4qi, currently competing Cournot. Market demand is P = 20 – Q.
a. a. Find the quantities,
b. Imagine firms1 and 2 merged to become one, so after the merger there are now two firms left in the market, firm 1&2 and firm 3. Assume there are no cost efficiencies expected and assume that the two firms play Cournot as before. Find the quantities, price, and profits of each firm in equilibrium
c. Was it profitable for firms 1 and 2 to merge in the first place?
d. Continuing with b., imagine that firms did not play Cournot after the merger, but rather that the merged firm 1&2 became a Stackelberg leader after the merger and firm 3 became the Stackelberg follower. If this were the case, find the quantities, price, and profits of each firm in equilibrium.
e. Was it profitable for firms 1 and 2 to merge in the first place? Did price rise or fall after the merger?
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