Canada: Merger and Regulations Your next task is to assess a proposed merger between WestJet and Flair Airlines. For simplicity, these are the only two firms in Canada. The cost of this merger is that the two firms will become one joint firm, or duopolists become the monopolist. This is likely to limit consumer choices and the equilibrium price is likely to rise. However, this merger is likely to increase economies of scale, or production cost will fall. From existing studies you know the following information, and P is the price per ticket and Q is the number of tickets: Demand for tickets: P = 800 - 2Q Marginal revenue: MR = 800 - 4Q Supply of tickets: MC = ATC = 200, identical across the two firms. Policy #1: Before Merger - Duopoly - the government does not intervene The social surplus (SS) is equal to 9 a. $80,000 0 b. 560,000 O c. $50,000 O d. $30,000Policy #2: Allow Merger and Reap Economies of Scale Suppose that if WestJet and Flair were to merge, they can share inputs and cut marginal cost. The inputs that they can share include flight terminals, meal services, flight crew, etc. You estimate that the MC = ATC per ticket will fall from $200 to $100. The new SS is equal to O a. 591,875 O b. 561,250 O c. $122,500 O d. $183,750Policy #3: Approve merger but regulate price - almost constant PS Because the newly merged firm has more market power, you want to regulate this new monopolist. Suppose you want the new PS to be approximately equal to the PS under Policy #1, before the merger. You solve for this quantity and for convenience, you truncate the quantity into an integer. Truncation means that if Q = 100.2 or Q = 100.8, you set Q = 100. The new 55 is equal to O a. $117,316 O b. 544,659 O c. 5111,300 O d. 5121,476Conclusion: Of these three policies, the consumers will most prefer the producers will most prefer and for Canada as a whole, we will most prefer O a. Policy #3; Policy #2; Policy #3 O b. Policy #1; Policy #2; Policy #3 O c. Policy #3; Policy #2; Policy #1 O d. Policy #2; Policy #3; Policy #3