1.Consider an industry that consists of two firms competing

1.Consider an industry that consists of two firms competing in price (ala Bertrand model) for a homogeneous good. Both firms have an identical constant marginal cost of 40. The market demand function is given by P = 100 – Q.
1)Find out the equilibrium of the Bertrand competition. 2)Suppose the two firms propose to merge. The merged firm will have a lower marginal cost of 30 through synergy and productivity gain. If the merger is successful, however it becomes a monopoly in the industry. Would Competition Bureau approve the proposed merger or reject it? Provide an economic analysis to support your answer and illustrate it by a diagram.


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