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Company X wishes to buy company Y

Economics

Company X wishes to buy company Y. The cross price elasticity of demand is 4.1. a. Are the goods substitutes or complements? b. The government decides to block this acquisition. Why might the government have done this, based on your previous answer? 10. A tax is levied on a product. This will raise the production cost. Which curve will shift and in which direction? 11. Sellers do not want to absorb the entire cost of the tax. Will they raise prices, lower prices, or keep them the same? 12. Before a tax, good Y sells for $10. The government imposes a $1 tax on good Y. Firm 1 raises the price it charges for good Y to $11. Firm 2 raises the price it charges for good Y to $10.50. a. Why is firm 2 charging a lower price than firm 1? b. If the tax is still $1, how much money will firm 2 collect from each sale? C. What do you expect firm 1 to do about its price, if anything?
13. Use the graph to complete the table. Price Supply + Tax 12 Supply 10 00 X 4 2 Demand 50 150 250 350 450 550 Quantity Equilibrium Price (w/o tax) Equilibrium Quantity (w/o tax) Quantity Sold (w/tax) Price Buyers Pay Price Sellers Receive Per-Unit Tax Per-Unit Tax Sellers Pay Per-Unit Tax Buyers Pay Tax Revenue Tax revenue = quantity sold x Per-unit tax 14. What effect will the tax above have on: Consumer Surplus Producer Surplus Government Tax Revenue Total Surplus Deadweight Loss 15. In the previous question, which side of the market has a higher elasticity: supply or demand?
16. In a competitive market, equilibrium price is $20 and equilibrium quantity is 50,000. If this market becomes a monopoly a. Will the equilibrium price increase or decrease? b. Will the equilibrium quantity increase or decrease? (Hint: consider quantity demanded.) c. Will consumer surplus increase or decrease? d. Will producer surplus increase or decrease? e. Will total surplus increase or decrease?
7. The price of a good is $12. Each good sold has a negative externality of $3. Find the social cost.

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a) Cross price elasticity of demand measures the change in quantity demanded of one good when the price for another good changes. Here, it is given to be 4.1. Since it is positive, it implies that there are substitute goods.

b) The government blocked this acquisition because the two goods were substitute goods. If Company X acquired Company Y, it would lead to Company X having a monopoly in the market, which the government usually acts again.

10.

If production costs increase, this would shift the supply curve leftwards / upwards. This is because now for the same quantity of goods, the firm demands a higher price as it faces higher costs to produce it because of the tax.

11.

Sellers will increase prices so as to pass on part of the tax to consumers instead of having to bear it completely by themselves.

12. More information about the question statement or previous questions is needed to answer this. However, I'll still try to explain this answer using economic logic.

a) Based on the given information, it can be concluded that firm 2 is charging a lower price and bearing half of the tax itself so as to capture a greater market share than firm 1, which is charging a higher price.

b) Cannot say based on the given information, more information needed.

c) Based on the given information, Firm 1 is expected to pay part of the tax itself and reduce its product price so as to not lose the market share completely to firm 2.

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