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. What is the change in total surplus that results from the merger?

If each firm operating in this market incurred a fixed cost of $100, would you permit this merge? this situation produces a change in social welfare?