Consider a homogeneous good Cournot duopoly with inverse demand function given by p = 1 –...

Consider a homogeneous good Cournot duopoly with inverse demand function given by p = 1 – Q. The two firms have identical marginal costs equal to 0.4 and propose a merger. The firms claim that the merger will result in a decrease of the marginal cost of the merged firm by x per cent. How large would x need to be for welfare to increase rather than decrease as a result of the merger?

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Rahul Sunny answered 1 year ago

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