Economic Merger Evaluation
a. A market is currently characterized by a perfectly competitive structure. If market demand is P = 200 - Q and MC = ATC = 50 for each of the competitive firms, what is equilibrium output and price in the market? Show work. Calculate consumer surplus in the market. Show work.
b. If a series of horizontal mergers monopolizes the industry and results in lower costs such that MC = ATC = 40, what happens to market output and price? Show work. Does this merger improve social welfare (producer surplus plus consumer surplus)? Show work.
c. To what value would ATC have to fall in order for society to “break even” on social welfare following the merger? Show work.