(solution) Using the same example, suppose now that firms 2 and 3 propose a merger. There are no cost synergies

(solution) Using the same example, suppose now that firms 2 and 3 propose a merger. There are no cost synergies

Using the same example, suppose now that firms 2 and 3 propose a merger. There are no cost synergies and the marginal cost of the merged firm is equal to the lower of the two premerger marginal costs, that is, c m = 0 . 1. Welfare is the sum of consumer surplus and total profits. What is the net change in welfare resulting from the merger? How does it compare to the net change in welfare resulting from the merging of firms 1 and 2 discussed in the section? Does this conform with the statement (at the end of Section 23.3) that the “efficiency effect” of a merger is larger the more efficient the nonmerging firms are?