Consider an industry with three firms each having marginal costs equal to zero . The inverse demand curve facing this industry is P (q1,q2,q3) = 60 - (q1 + q2 + q3).
(a) If each firm behaves as a cournot competitor , what is firm 1's best response function?
(b) Calculate cournot equilibrium of this problem.
(c) Firms 2 and 3 decide to merge and form a single firm (MC is still zero). Calculate the new industry equilibrium and comment on combined profits from a firms 2 and 3 considering pre and post merger profits .
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sorry don't know
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