121MID F06 - University of California Department of...

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University of California Fall 2006 Department of Economics R. Gilbert ECONOMICS 121 INDUSTRIAL ORGANIZATION Mid-Term Exam Directions: Answer all questions. Point values are indicated for each part of each question. Write clearly, label all graphs, and show all your work. Clarity will be rewarded. (20%) 1. Suppose that Chrysler (Firm A) and Mercedes-Benz (Firm B) are the only companies that sell trucks in a particular geographic market. The demand for trucks in this market is given by Q = 100,000 - 2 P . The two companies merge to become the only supplier of trucks in this market. Assume that before the merger, Chrysler and Mercedes-Benz sold trucks at a price of $20,000 per truck. The merger reduces competition between them and as a result the merged company is able to increase the price of trucks to $21,000. However, the merger also achieves cost savings. Suppose that before the merger, each company’s cost function was C ( q ) = 10,000,000 + 10,000 q After the merger, the cost function of the merged company is
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This note was uploaded on 09/29/2008 for the course ECON 121 taught by Professor Woroch during the Spring '07 term at University of California, Berkeley.

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121MID F06 - University of California Department of...

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