Following the entry of a new competitor, Randal inc., the company of a former employee who was dissatisfied with his working conditions and remuneration, the owner of GXR inc. wishes to review the company's development strategy in light of the substantial erosion of its market share in the market for rock dust aggregates for cement plants in the region.

Prior to the entry of Randal inc, GXR inc held a monopoly on this lucrative regional market. But since the entry of the rival company, GXR inc has seen prices drop by more than 10% in a matter of weeks and the owner of this company is worried about the long-term profitability of her business. The owner of GXR inc., having never had to deal with this type of situation before, is asking itself serious questions about the strategy to adopt to halt the erosion of its market share and the decisions to be made in order to stabilize prices.

You have been selected as a consultant to develop a strategic plan to maximize the profits of GXR inc

Following a detailed analysis of historical company and market data, it is concluded that the annual regional market demand is Q(p)=900-3p, where Q is measured in thousands of metric tonnes per year and p is the price in dollars per unit. Given the nature of the product, customers are indifferent to the product offering of both companies (and therefore, the product is homogeneous). Your analysis also suggests that the firm, having reached the minimum efficiency threshold with constant returns to scale, is able to produce at a constant average cost of $60 per metric ton. Your discussions with the owner of GXR inc lead to the conclusion that Randal inc. operates with essentially the same cost structure, since the former employee developed his business by imitating the GXR inc business model.

Question 1: Assuming that the competition between the two companies is quantitative, what do you estimate the annual loss of profits for GXR inc associated with the entry of Randal-GXR into the market at the Cournot-Nash equilibrium? Explain your answer.

Question 2: During a meeting with the owner of the company, the option of a merger with Randal-GXR was discussed in order to restore balance in the market. If the discount rate for both companies is 10%, what is the maximum price that the owner of -GXRshould be willing to pay to acquire Randal-GXR? Explain your answer briefly.