Inverse demand in the market has been estimated to be,

P = 670 ?Q/40,

where P represents the price of a cubic metre of concrete in dollars, and Q is the total

number of cubic metres of concrete supplied into the market on a given day.

At present the three firms appear have identical production costs, with each firm facing

fixed costs of $400,000 per day and a marginal cost of $190 per cubic metre.

Big Industries and ConCorp estimate that the proposed merger would reduce their

marginal cost to $145 per cubic metre, while the merged firm is expected to face fixed

costs of $600,000 per day.

1|i"|i"hen completing the industry analysis you should assume that firms are engaged in Cournot Competition. Steps 1 to 4 apply to the market in the absence of a merger. Step 1: Using the information proyid ed in the scenario, derive a profit function for a typical firm in the industry. Use [3,: to denote the quantity produced by this firm, and X to denote the combined production of the remaining two firms. {6 marks) Step 2: Derive the bestresponse function for the typical firm. {5 marks) Step 3: Find the equilibrium quantity for the typical firm, the equilibrium market quantity, and the equilibrium market price. 1:? marks) Step 4: Find the equilibrium profit for the typical firm and the equilibrium consumer sur plus. (6 marks) 1|i'li'hen writing your brief you should assume that steps 3 and 4 describe the existing equi- librium in the market. Now suppose that the merger takes place and that the merged firm achieves the expected efficiencies. {Note thatAggregate |nc.'s costs are not be affected by the merger.) Step 5: Find the new equilibrium quantities and price for the market. Use {3,4 to denote the quantity produced by Aggregate Inc., and {:13 to denote the quantity produced by the merged firm, BigCon. {18 marks} Step E: Find the new equilibrium firm profits and consumer surplus. (8 marks)