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net loss from the merger

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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?

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A. COMPUTE -- What is the consumer surplus [loss] associated with the merger.
The decrease in consumer surplus = (old quantity + new quantity)* increase in price / 2
= (200+150)*(14-10)/2 = 700
So the consumer surplus loss ...

Solution Summary

This posting determines net loss from the merger.

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