Consider a market that is initially served by two firms, each of which charges a price of $10 and sells 100 units of the good. The long-run average cost of production is constant at $9 per unit. Suppose a merger will increase the price to $14 and reduce the total quantity sold from 200 to 150.
A. COMPUTE -- What is the consumer surplus [loss] associated with the merger.
B. COMPUTE -- What was the profit before the merger? after? increase?
C. How does the consumer loss compare to the increase in profit?
D. COMPUTE --- What is the net loss from the merger to SOCIETY?© BrainMass Inc. brainmass.com October 9, 2019, 7:34 pm ad1c9bdddf
The loss in consumer surplus can be calculated as follows:
4x150 + 0.5x4x50
= 600 + 100
The solution explains the different economics behind a merger using the questions below.