# Sub: Economics

Topic: Micro Economics

Question: Calculate industries Cournot equilibrium price, quantity and profit. Show the effects of merge between two firms given the cost and demand function.

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(i) What is the industry equilibrium (price, output and profits) if the firms have Cournot beliefs? (ii) Would it pay for Firm 1 and Firm 2 to merge, if, after the merger, the remaining firm plays Cournot? (Hint: carefully consider if the merged firm would produce using both original firms’ plants or just those of one firm.) (iii) What happens if their costs are C(q) = 18q instead?

Solution:
(i)C(q)=18+q^2 P=150 – Q=150 – (q1+q2+q3) MC1=18+2q1 MC2=18+2q2 MC2=18+2q2 TR1= 150q1 - q1^2 – q2*q1 – q3*q1 TR2= 150q2 – q2^2 – q2*q1 – q3*q2 TR3= 150q3 – q3^2 – q2*q3 – q3*q1 MR1=150 – 2*q1 – q2 – q3 MR2=150 – 2*q2 – q1– q3 MR3=150 – 2*q3 – q2 – q1
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Sub: Economics

Topic: Micro Economics

On equating MR1=MC1 and MR2=MC2 and MR3=MC3 we get q1=q2=q3=22 P= 150 – (q1+q2+q3) = 84 Profits of each firm= TR – TC=1848 – 880= 968 If you like to download the complete solution , visit our solution library by copying to your browser the following link
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