3.17 To examine the trade-off between efficiency and market power from a merger, consider a market with two firms that sell identical products. Firm 1 has a constant marginal cost of 1, and Firm 2 has a constant marginal cost of 2. The market demand is Q = 15 - p.

548 ChAPTEr 14 Oligopoly

a. Solve for the Nash-Cournot equilibrium price, quantities, profits, consumer surplus, and deadweight loss. (Hint: See Solved Problem 14.1.)

b. If the firms merge and produce at the lower marginal cost, how do the equilibrium values change?

c. Discuss the change in efficiency (average cost of producing the output) and welfare—consumer surplus, producer surplus (or profit), and deadweight loss. M