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Vertical mergers occur when a firm that produces an intermediate product merges with another firm that produces a final product/good whose production requires the intermediate good. Time Warner, Prudential Financial and Brook Bond Lipton India Ltd are examples of vertical, conglomerate and horizontal mergers respectively (Layne 69).
Business organizations form mergers because of various reasons. The main ones include the aspect of reducing competition, reducing cost or switching to cost conditions in order to get economies of scope, to increase profitability and to increase market share of particular products just to mention a few (Layne 74). However, it is crucial to note that mergers may not reduce competition incase cournot oligopoly firms exists.
In case of a horizontal merger whereby two firms merge with one being a low cost firm than the other one, the Cournot model formed results to cost of one firm being C1=1 while that of the other firm is C2=4. This is the case because demand (P)=10-Q whereby P and Q are price and quantity respectively. Firms that do not merge face high production cost, hence produce less.
The set up model is a Cournot model because non-merged firms face higher production cost than the merge, thus have low productivity. However, this is applicable in the case of identical firms. The model also increases production, though it reduces consumer welfare. If the Bertrand model would be applied, firm 2 would have produced at all because of high production cost.
The main gains of mergers include the elements of high profitability because of making more sales and the lower competition that is triggered by the existence of one producer (Layne 76). Other benefits include reducing production cost as a result of switching to cost conditions, hence getting economies of scope as well as increasing the market share of particular products. The main disadvantages or losses of mergers include the aspects of some firms
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The cost of one forklift is 2/6= .33 automobiles. The concave shape of the production possibilities curve shows the increasing opportunity costs. The shape of the curve depicts that the economy must give up larger units of rockets to gain added units of automobiles.
In the long run the price will first rise from P1 to P2 and then adjust itself due to entry of more firms to P3 which is lower despite the increment in the quantity of oil demanded; hence Nadler-Kafferlin will be right (Taylor et al, p 261).
c) According to Brill (2013), non-profit hospitals are actually high-end profit making institutions. This is because physicians’ bid to increase the income of medical staff has led to the non-profit hospitals increasing the prices
An example of oligopoly market structure is the health insurers.
Oligopolies and monopolies consist of large organizations in the market; they also hold considerable market shares over specific services and products in the industry.
Then firm 2 chooses quantity given the choice of Firm 1.
Part b: Compare the output of the Stackelberg to the Cournot duopoly output. (* of course you will have know, or look up the Cournot model that we dealt with in the first
ws a firm to acquire its target profits by charging different prices to its consumers without their knowledge because of the reduced level of transparency (p. 565).
Loss-Leader Pricing Strategy: The strategy occurs whenever a firm imposes reduced prices on the goods of
a) Double marginalization Is the strategy that different firms within the same industry opt to apply their own price mark-ups so that they are able to respond to their differences in levels of supply. The different mark-ups
When imports in the country are cheaper, it helps in keeping inflation low, which is a goal for the majority of countries. Due to the small importation rates, it is easier for local industries to expand since
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