Question

b) Continue to assume that x = 5/4, but the market for long-distance telephone service remains perfectly competitive following the merger. For what values of s will the DOJ approve this merger? (15)

Answer 1

$$Q=a-bp+s$$

$$Q=x[K+\frac{1}{2}L]$$

$$x[K+\frac{1}{2}L]=a-bp+s$$

$$s=x[K+\frac{1}{2}L]-a+bp$$

if $x=\frac{5}{4}$

$$s=\frac{5}{4}[K+\frac{1}{2}L]-a+bp$$