Question

Need some help on the question below

The market for a standard-sized cardboard containers consists of two firms: Composite Box and Fiberboard. As the manager of Composite Box, you enjoy a patented technology that permits your company to produce boxes faster and at a lower cost than Fiberboard. You use this advantage to be the first to choose its profit-maximizing output level in the market. Given that Q = Q(Composite) + Q(Fiberboard), the demand function for the market is Q = 200 – 1/6P. Composite Box’s cost function is C = C(Qc) = 60Qc and Fiberboard’s cost function is C = C(Qf) = 120Qf. a. What type of oligopoly is this? b. What are each firm’s current profits? c. If the two firms merged, what type of industry would result from this merger? d. Composite Board is considering buying Fiberboard and producing all the output at its current factory. What would be the level of output and price from the proposed merger, ignoring antitrust considerations? e. What would be the resulting level of profit after the merger? f. How much should Composite Board offer Fiberboard to merge?

Answer 1