Suppose that the market for cherries in Shandong Province consists of two firms: Organicherry and Pesticherry. You are the owner of Organicherry, and have discovered a natural way to ward off aphids without resorting to pesticides. This advantage has allowed you to enjoy a relatively higher yield than Pesticherry. You use this advantage to be the first firm to choose its output level. The inverse demand function for a box of cherries is P = 1,125− 5Q (prices are in CN¥). Organicherry’s costs are CO(QO) = 40QO, and Pesticherry’s costs are CP(QP) = 80QP. If there were no official/legal issues in merging the two firm, would it be profitable to merge with Pesticherry? If so, how much would you offer to Pesticherry’s owners? [You may use the facts that, if R(Q)=aQ2 +bQ+c then MR(Q)=2aQ+b and that,ifC(Q)=cQ then MC(Q) = c.]
Suppose that the market for cherries in Shandong Province consists of two firms: Organicherry and Pesticherry. You are the owner of Organicherry, and have discovered a natural way to ward off aphids without resorting to pesticides. This advantage has allowed you to enjoy a relatively higher yield than Pesticherry. You use this advantage to be the first firm to choose its output level. The inverse demand function for a box of cherries is P = 1,125− 5Q (prices are in CN¥). Organicherry’s costs are CO(QO) = 40QO, and Pesticherry’s costs are CP(QP) = 80QP. If there were no official/legal issues in merging the two firm, would it be profitable to merge with Pesticherry? If so, how much would you offer to Pesticherry’s owners? [You may use the facts that, if R(Q)=aQ2 +bQ+c then MR(Q)=2aQ+b and that,ifC(Q)=cQ then MC(Q) = c.]
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose that the market for cherries in Shandong Province consists of two firms: Organicherry and Pesticherry. You are the owner of Organicherry, and have discovered a natural way to ward off aphids without resorting to pesticides. This advantage has allowed you to enjoy a relatively higher yield than Pesticherry. You use this advantage to be the first firm to choose its output level. The inverse demand function for a box of cherries is P = 1,125− 5Q (prices are in CN¥). Organicherry’s costs are CO(QO) = 40QO, and Pesticherry’s costs are CP(QP) = 80QP. If there were no official/legal issues in merging the two firm, would it be profitable to merge with Pesticherry? If so, how much would you offer to Pesticherry’s owners? [You may use the facts that, if R(Q)=aQ2 +bQ+c then MR(Q)=2aQ+b and that,ifC(Q)=cQ then MC(Q) = c.]
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