Problem 3. [Oligopoly and Merger Analysis] Consider the market for air travel between Amsterdam and Paris. Assume that this market can be modelled as a Cournot market operated by 3 initially symmetric homogeneous product sellers that serve a demand given by p=1621Q, where Q=qK+qA+qT denotes 1 the aggregate quantity put in the market by KLM, AirFrance and Transavia. Each firm has a total cost given by C(qi)=4qi. (a) (0.5 points) Determine pre-merger equilibrium quantities and profits of the three players. Suppose that KLM and AirFrance decide to merge and the two resulting firms compete in the standard Cournot setting. The cost function of the merged firm is as before C(qi)=4qi (b) (0.5 points) Determine whether merging is profitable for the merged entity. Do the merging firms gain by merging? Does the non-merging firm benefit from the merger? (c) (0.5 points) What are the effects of this merger on consumer surplus and social welfare? Would the competition authority approve such a merger based on the impact on consumers? Problem 3. [Oligopoly and Merger Analysis] Consider the market for air travel between Amsterdam and Paris. Assume that this market can be modelled as a Cournot market operated by 3 initially symmetric homogeneous product sellers that serve a demand given by p=1621Q, where Q=qK+qA+qT denotes 1 the aggregate quantity put in the market by KLM, AirFrance and Transavia. Each firm has a total cost given by C(qi)=4qi. (a) (0.5 points) Determine pre-merger equilibrium quantities and profits of the three players. Suppose that KLM and AirFrance decide to merge and the two resulting firms compete in the standard Cournot setting. The cost function of the merged firm is as before C(qi)=4qi (b) (0.5 points) Determine whether merging is profitable for the merged entity. Do the merging firms gain by merging? Does the non-merging firm benefit from the merger? (c) (0.5 points) What are the effects of this merger on consumer surplus and social welfare? Would the competition authority approve such a merger based on the impact on consumers