Question: merger analysisthe demand for a product isq 100p initially the...
Merger Analysis.The demand for a product isQ= 100−P. Initially the marginal cost isMC0= 40 and the price isP0= 40.
(a) What is the total surplus?(b) If a cartel forms, the price rises to P1= 70, and the marginal cost stays the same atMC1= 40. What is the total surplus with a cartel?
(c) If a merger happens, the price would become P2= 70 and the marginal cost would be come MC2= 30. What is the total surplus after the merger?
(d) Consider again the merger. Keeping all the others parameters fixed, for what values of P2 should the merger be allowed? (Your can say something like “the merger should be allowed if P2 is more than 50”, or “the merger should be allowed if P2 is less than50”.)