Question
Two physical therapy firms want to merge. The price elasticity of demand for physical therapy is -0.40. Firm A has a volume of 10,400, fixed
Two physical therapy firms want to merge. The price elasticity of demand for physical therapy is -0.40. Firm A has a volume of 10,400, fixed costs of $50,000, marginal costs of $20, and a market share of 8 percent. Firm B has a volume of 15,600, fixed costs of $60,000, marginal costs of $20, and a market share of 12 percent. The merged firm has a volume of 26,000, fixed costs of $100,000, marginal costs of $20, and a market share of 20 percent. (a) What are the total costs, prices, revenues, and profits for each firm and for merged firm? (b) How does the merger affects markups and profits?
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