Answer to Question #73648 in Other Economics for Jony Darlong
Consider an industry with three firms each having marginal costs equal to zero. The inverese demand curve facing thos industry is P(q1,q2,q3)=60-(q1+q2+q3)
a) If each firm behaves as a cournot competitor, what is firm 1's best response function?
b) Calculate cournot equilibrium of this problem.
c) Firms 2 and 3 decide to merge and form a single firm (MC is still zero). Calculate the new industry equilibrium and comment on combined profits from firms 2 and 3 considering pre and post meger profits