*3.1 Suppose that the only two firms in an industry face the market (inverse) demand curve p = 150 - Q.

Each has constant marginal cost equal to 30 and no fixed cost. Initially, the two firms compete as Cournot rivals (Chapter 11) and each produces an output of 40. Why might these two firms want to merge to form a monopoly? What reasons will antitrust authorities have for opposing the merger?

(Hint: Calculate price, profits, and total surplus before and after the merger.) C