Consider an industry with three firms, with demand curves as given below.
Q1 = 140 -12P1 + 3P2 + 3P3 Q2 = 130 – 10P2 + 3P1 + 2P3 Q3 = 135 -9P3 + 2P1 + 2P
2.Each firm has a marginal cost of 4.1.
Calculate the pre-merger prices.2. Assume that firms 1 and 2 merge, to form a new firm “M”. Assume also that the merger allows M to reduce marginal cost from 4 to 2. Firm 3’s marginal cost remains at 4. What are the new equilibrium prices?
