Question: (See the document attached below)

HHI One way of measuring market concentration is through the use of the Herfindahl index, which is defined as H = >_185 where s, = 4i Q is the firm i's market share. The higher is H, the more concentrated the industry is said to be. Intuitively, more concentrated market are thought to be less competitive because dominant firms in concentrated markets face little competitive pressure. We will assess the validity of this intuition using several models. (a) If you have not already done so, answer Problem 4(d) by computing the Nash equilibrium of this n-firm Cournot game. Also compute market output, market price, consumer surplus, industry profit, and total welfare. Compute the Herfindahl index for this equilibrium. (b) Suppose two of the n firms merge, leaving the market with n - 1 firms. Recalculate the Nash equilibrium and the rest of the items requested in part (a). How does the merger affect price, output, profit, consumer surplus, total welfare, and the Herfindahl index? (c) Now consider the scenario where the merger reduces the marginal cost for the merged firm. How will that change your answer for part (b)