Econ 483_Lecture 21_Public provision

Case ii if rms merge once the merger has taken place

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Unformatted text preview: (200) where 0 λ 1 Lecture 21: Public Support of R&D, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Case II: If …rms merge... Once the merger has taken place, the two …rms are replaced by a single monopolist. Monopolist’ pro…ts: s π M = (100 QM ) QM 30QM 300 Pro…t-maximisation requires: ∂π M = 0 , 100 ∂QM Price: PM = 100 2QM QM = 100 Monopolist’ pro…ts: π M = (100 s Lecture 21: Public Support of R&D, 30 = 0 , QM = 35 35 = 65 35) 35 Econ483: Econ of Innovation & Technology, 30 (35) 300 = 925 Evangelia Chalioti c A ll rights reserved. Consumer surplus: CSM = 1 (100 2 65) 35 = 612.5 Total welfare before the merger: WM = CSM + λπ M = 612.5 + λ (925) Lecture 21: Public Support of R&D, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Regarding the value of λ required for the merger to be approved: the merger will only proceed if the post-merger welfare exceeds the pre-merger welfare: 612.5 + 925λ 800 + 200λ , λ 0.26 Thus, if λ 0.26 - i.e. a su¢ ciently high weight is placed...
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This note was uploaded on 03/16/2014 for the course ECON 483 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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