Question

Firm 2 and 3 decided 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 merger profits

Answer 1

When two firms merge like in the case 2and 3 ,a cournot duopoly equilibrium come to existence. This result in fall of total output and also the prices will rise. So the combined profit will be higher than before merger.