8. Suppose there are two firms in the market. The market demand is Q=100-p and the marginal cost of production is constant at 40.What is the outcome of price and quantity and the total welfare if those two firms compete like perfect competition?What is the outcome of price and quantity and the total welfare when those two firms merge into a monopoly?What are the pre-merger HHI, post-merger HHI and change in HHI? How does the Horizontal Merger Guideline 2010 classify this proposed merger?

Answered: 8. Suppose there are two firms in the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8. Suppose there are two firms in the market. The market demand is Q=100-p and the marginal cost of production is constant at 40.

What is the outcome of price and quantity and the total welfare if those two firms compete like perfect competition?
What is the outcome of price and quantity and the total welfare when those two firms merge into a monopoly?
What are the pre-merger HHI, post-merger HHI and change in HHI? How does the Horizontal Merger Guideline 2010 classify this proposed merger?

Expert Solution

Step 1

When the two firms compete in the market, thus, here it is an example of Bertrand competition.

The monopoly behavior leads to the rise in the price and decline in output which reduces the profits.

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