Check my work 2 Suppose the European Union (EU) is investigating a proposed merg
ID: 1112119 • Letter: C
Question
Check my work 2 Suppose the European Union (EU) is investigating a proposed merger between two of the largest distillers of premium Scotch liquor. Based on some economists' definition of the relevant market, the two firms proposing to merge enjoyed a combined market share of about two-thirds, while another firm essentially controlled the remaining share of the market. Additionally, suppose that the (wholesale) market elasticity of demand for Scotch liquor is -1.3 and that it costs $16.20 to produce and distribute each liter of Scotch. 2 points Based only on these data, provide quantitative estimates of the likely pre- and postmerger prices in the wholesale market for premium Scotch liquor Print Instruction: Do not round intermediate calculations. Enter your final responses rounded to the nearest penny (two decimal places). Pre-merger price: $ Post-merger price: $ 1 ReferencesExplanation / Answer
Pre - merger price i.e. the pofit - maximizing price when firms compete = [ 3 * (-1.3) / (1+3 * (-1.3)) ] (16.20)
= (-3.9 / -2.9) (16.20)
=(1.3448) (16.20)
= 21.79
Post- merger price i.e the profit-maximizing price when firms merged = [ 2 * (-1.3) / (1+2 * (-1.3)) ] (16.20)
= ( -2.6 / -1.6 ) (16.20)
= (1.625) (16.20)
= 26.33