20. Two hospitals want to merge. The price elasticity of demand is 0.20, and eac
ID: 1197697 • Letter: 2
Question
20. Two hospitals want to merge. The price elasticity of demand is 0.20, and each clinic has fixed costs of $100,000. One clinic has a volume of 9,200, marginal costs of $70, and a market share of 3 percent. The other clinic has a volume of 15,800, marginal costs of $80, and a market share of 6 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. (5 pts)
What are the total costs, revenues, and profits for each clinic and the merged firm? How does the merger affect markups and profits?
Explanation / Answer
Total cost per unit for clinic = 10.86+70 = 80.86
Total cost per unit for clinic two = $80
Total cost shen teo firms merge = 80000/15800 +60 = 65.06
Since this cost is lesser for both the clinics. it is beneficial for both the firms. Since price is not given, profits cannot be determined.
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