Economists are often asked to help the Department of Justice evaluate the costs and benefits of mergers. This problem walks you through two rudimentary merger analyses. Consider a market where two firms engage in Cournot competition. They face inverse industry demand curveP=25(1/2)*Q. The firms each face a marginal cost of $1. If the two firms merge, they will act as a monopolist and set a single pricepM. Hint: the monopolist single price pM is: 13 and Q is: 24.

Question: If each firm operating in this market incurred a fixed cost of $100, would you allow this merge? this situation creates a change in social welfare?