Horizontal Mergers (25 points) Two firms each sell one differentiated product. Each firm has cost function C(q) = cq. The firms compete in prices and the demand for each product is: 91 = a P1 + Bp2 92 = a P2 + Bpi (a) Suppose the firms merge. What is the increase in price (measured in dollars) in terms of a, B and c. (b) Now suppose that by merging the firms can lower their cost function from C(q) = cq to C(q) = Ecq, where E