Theory of Industrial Organization
Instructions: Answers to each of the following problems will be evaluated based on accuracy, completeness and clarity. Unsupported answers will receive no credit. Any assumptions you make in answering the questions below should be clearly stated.
1. True, false, or uncertain: If all firms in an industry of N firms have identical constant marginal costs and no fixed costs of production, no two firms in the industry will have an incentive to merge.
2. True, false, or uncertain: If the motive for a merge is for the participating firms to lower their combined fixed costs of production (and share the fixed costs of producing the combined quantity in a single firm) then consumers are necessarily harmed by the merger.