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Suppose that there are two firms in the industry, and they are competing in quantities. The...


Suppose that there are two firms in the industry, and they are competing in
quantities. The amount of the commodity sold by firm i is qi, i =1,2. The market
demand function is given by P = 50 − 3q , where q = q1+q2. The cost functions for each firm is given by TCi =25 + 5qi , i = 1,2.

3.1) Find the profit-maximizing quantity for each firm, and determine each
firm’s profit level.
3.2) Suppose that both firms merge. Compute the new profit-maximizing
quantity and the new profit of the merged firm. Do firms have incentive to merge, and why?

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