Consider three markets: M1, M2, and M3. There are features of these markets that the Department of Justice observes and features the Department of Justice does not observe. The DOJ observes that M1, M2, and M3 have one, two, and three firms respectively, that output in all three markets is non-differentiated, and aggregate demand in each market is given by P = 100-Q. The DOJ does not observe firms costs and therefore assumes that marginal costs are constant and equal to c1, c2, and c3 in the three markets.
a. What price will we observe in M1?
b. If firms are cournot competitors, what price will we observe in M2 and M3?
c. What must be true about costs for consumer surplus to be higher in M1 than in M2?