Question
Calculate consumer surplus under three distinct scenarios below. Also, provide a graphical analysis for each scenario. a. Pre-merger (base case): Assume: Q = 200 -
Calculate consumer surplus under three distinct scenarios below. Also, provide a graphical analysis for each scenario.
a. Pre-merger (base case): Assume: Q = 200 - 2P and MC = 50. Calculate consumer surplus, assuming the market is competitive.
b. Post-merger (short term): Assume Q = 200 - 2P but MC = 20 (it declines post-merger). Calculate consumer surplus assuming the merger creates market power.
c. Post-merger (long term): Assume longer-term innovation, etc., pushes the demand curve to the right, and the firm continues to realize lower marginal costs. So, Q = 400 - 2P and MC = 20. Calculate consumer surplus, assuming the merged firm continues to have market power.
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