Exercise 6. Merger to monopoly

Suppose there are two firms producing a homogeneous good and with marginal costs c (with a>c>0). They compete in prices. Demand is Q=a-p

Q1) Find duopoly price, quantities, profits, welfare at equilibrium

Q2) Suppose the two firms merge, and new company has a marginal cost ecc, with e1.

a) Under which conditions would the merger be profitable?

b) Under which conditions would the merger raise consumer surplus and welfare?