2. Market shares in the Breakfast cereal industry are approximately as follows: Kellogs and General Mills each have 30%, Post has 20% and lets say that other two companies Quaker and H&H each have 10%. Suppose competition is like in the Cournot model. (a) Calculate the Herndahl Index. (b) Suppose demand elasticity is -0.5, market price 100 and total sales 200. Show that marginal costs CK = CGM = 40,121: = 60 and 0Q = (:33 = 80, the intercept of the demand function a = 300 and the slope b = 1. Calculate producer surplus and consumer surplus. (c) Suppose Quaker and H&H decide to merge and as a consequence of the merger, the marginal cost of the merging rm falls to 60. Solve for the new equilibrium. What happens with the Herndahl index? Does total surplus increase? (d) Suppose instead there are no cost savings. Is the merger good for consumers? Is it good for the other rms? (Hint. You don't need to recompute the equilibrium to answer this.)