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Two clinics want to merge, The price elasticity of demand is –0

Economics Nov 21, 2020

Two clinics want to merge, The price elasticity of demand is –0.20, and each clinic has fixed costs of $60,000. One clinic has a volume of 7,200, marginal costs of $60, and a market share of 2 percent. The other clinic has a volume of 10,800, marginal costs of $60, and a market share of 4 percent. The merged firm would have a volume of 18,000, fixed costs of $80,000, marginal costs of $60, and a market share of 6 percent.

a. What are the total costs, revenues, and profits for each clinic and for the merged firm?

b. How does the merger affect markups and profits?

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