QUESTION 2A merger of two price-making firms producing identical products will make the new firm's demand curve more elastic than the unmerged firms'. make the new firm's demand curve less elastic than the unmerged firms'. lower the 5-firm concentration ratio. increase the level of competition in the market.

An accurate statement about a vertical merger is that Blank______.Multiple choice question.it is a combination of two firms producing the same products but selling them in different geographic marketsit is the combination of two firms that produce closely related products in the same geographic areait tends to stabilize supply and production and gives firms greater control over these aspectsit is always motivated by economies of scale in marketing, production, or sales

How can economies of scale be achieved post-merger?By diversifying product linesBy entering new marketsBy reducing operational redundanciesBy increasing competition

Let's consider if Firm 1 can do better by setting a price higher than thesolution to question (b). The downside of firm 1's setting a higher price isthat it will lose some of the market. The upside is that it will charge moreto any customer it keeps. The next question gets you to work out just howmany customers buy from firm 1 when the prices are 'close'. (c) (10 points) Suppose that prices p1 and p2 are close enough that themarket is split between the two firms. Use expressions (a) and (b)above to find the location of the customer who is exactly indifferentbetween buying from firm 1 and buying from firm 2. Use your answerto argue that, when the market is split, firm 1's demand is given by: D1(p1; p2) = (p2 + t -p1)/2t, We now have all the information we need to calculate firm 1's best responseto each p2. When the market is split, firm 1's profits are given by u1(p1; p2) = (p1 -c)D1(p1,p2) =[p1 (p2 + t + c) -(p1)^2-c(p2+t)]/2t, Notice it follows from expressions (1) and (2), that for intermediate levels of p2, the best response of firm 1 to firm 2 setting some intermediate pricep2 is to set a price p1 that solves max p1[p1 (p2 + t + c) -(p1)^2-c(p2+t)]/2t, (d) (5 points) Given that for intermediate levels of p2, that the (partial) derivative of u1(p1; p2) with respect to p1 is (p2 + t + c)/2t, show that the best response for firm 1 for intermediate levels of p2,can be expressed as BR1(p2) = (p2 + t + c)/2, (e) (15 points) Draw a picture of the best responses of frms 1 and 2. Be careful to indicate in your picture what happens to BR1(p2) when p2 < c-t, and when p2 > 3t+c. [Hint: recall your answers to parts (a)and (b) above]. Draw the best response BR2(p1) on the same picture. (f) (10 points) Use algebra to find the Nash equilibrium.(g) (5 points) What is the equilibrium price when t = 0? Interpret youranswer. People sometimes say 'competition gets less fierce as productsbecome less similar and more differentiated'. How does this show upin our model?

Two or more firms competing for differentiation may engage in price wars that drive profits to very low levels.Question 5Select one:TrueFalse

If the market for products produced by firms in a monopolistically competitive industrybecomes ________, then there will be ________ firms and each firm will produce ________output and charge a ________ price.A) larger; fewer; more; higherB) larger; more; less; higherC) larger; fewer; more; lowerD) larger; more; more; lowerE) larger; more; more; higher