ECC3830 horizontal mergers

Suppose there are two rms, 1 and 2, in the market with cost structures [31(q1) = clql and c2 (gig) = czqz where ql and q2 are the outputs produced by the two rms. Suppose the inverse market demand curve is of the form 39 = a. q where p is the market prige and q = q1 + qr2 is the aggregate market output. Then the Coumot equilibrium outcomes are: qczn2c1+c3 ondq =a2c2+c1 1 s 3 3 Eatclc2 {IEZQiJFquT c_ c_ ZClE2_H+C1+CZ I" _\"_q \"Pff Use the above information to answer the following question. Suppose the market demand is p = 20 q. The cost functions of the two rms are 510511) 2 U and 52(Q2) : 2512- (i) If the two rms act independently, calculate the Coumot equilibrium outputs, equilibrium price, equilibrium prots of the two rms, consumer surplus and social welfare which is the sum of the prots of the two rms and consumer surplus. You need to draw a diagram to determine the consumer surplus. (ii) Suppose the two rms merge. Should both rms continue production or only one rm will produce all the output? Explain your answer? Calculate the equilibrium outputs, equilibrium price, equilibrium prots, consumer surplus and social welfare. (iii) Suppose rm 2's cost function is c2 (12) = 41:12. Calculate the pre-rnerger and post-merger outcomes (SMIEE. to parts (i) and (ii), respectively). Does merger result in a higher social welfare? (iv) Using your social welfare results in parts (ii) and (iii), explain which merger will a regulator approve and why? If a merger is not approved, you need to provide a justication