1. Assuming firms in a market face a linear downward-sloping demand curve and constantmarginal and average costs, carefully explain where equilibrium price would be if it were a competitive market.

2. Using the same diagram, and supposing a horizontal merger occurs between firms in the industry, explain under what circumstances the merger might be allowed by the anti-trust authorities if the industry is pricing competitively prior to the merger, but raises the market price after the merger.

3. Would the merger still be allowed to go ahead if the pre-merger price exceeds the competitive price?