Consider a company A operating in an oligopoly which has a market share of 20% and a unit cost of $50. It currently sells at a price (P) of $52.9 with a price elasticity of demand of -3.5. This company will merge with company D, so that market share will reach 50%. Estimate impact of this operation on selling price under 2 scenarios: (a) With economies of scale, given the merger. Cost reduction of 15%. b) Without economies of scale, constant cost of 50%. c) How much does market power of merged company change, considering with and without economies of scale?
Consider a company A operating in an oligopoly which has a market share of 20% and a unit cost of $50. It currently sells at a price (P) of $52.9 with a price elasticity of demand of -3.5. This company will merge with company D, so that market share will reach 50%. Estimate impact of this operation on selling price under 2 scenarios: (a) With economies of scale, given the merger. Cost reduction of 15%. b) Without economies of scale, constant cost of 50%. c) How much does market power of merged company change, considering with and without economies of scale?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter10: Prices, Output, And Strategy: Pure And Monopolistic Competition
Section: Chapter Questions
Problem 8E
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COURSE: MICROECONOMICS LEVEL 2
Consider a company A operating in an oligopoly which has a market share of 20% and a unit cost of $50. It currently sells at a price (P) of $52.9 with a price
(a) With economies of scale, given the merger. Cost reduction of 15%.
b) Without economies of scale, constant cost of 50%.
c) How much does market power of merged company change, considering with and without economies of scale?
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