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(16 points). You are a member of the Justice Department. A group of competitive firms in the shoe industry announce that they plan a horizontal
(16 points). You are a member of the Justice Department. A group of competitive firms in the shoe industry announce that they plan a horizontal merger (a merger of all competitors) that will lead to a monopoly in this industry. Assume that all firms are maximizing profits. The demand for shoes in this industry is characterized by the following inverse demand function: P = 1000 Q. a. Analyze the impact of the merger in a situation where the marginal costs and average costs of producing shoes are $600 per unit for the firms prior to the merger and they remain at $600 per unit after the merger. Show the before and after situations on the same graph and use sentences to describe how the merger will change the following: the price of shoes (2) the quantity of shoes (2) consumer surplus (2) producer economic profits (2) iv. b. Analyze the impact of the merger in a situation where the marginal costs and average costs of producing shoes are $600 per unit for the firms prior to the merger and they fall to $50 per unit when the firms are all merged into the single monopoly. Show the before and after situations on the same graph and use sentences to describe how the merger will change the following: i. the price of shoes (2) ii. the quantity of shoes (2) iii. consumer surplus (2) iv. producer economic profits (2)
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