The market for a standard-sized cardboard container consists of two firms: Compo
ID: 1214141 • Letter: T
Question
The market for a standard-sized cardboard container consists of two firms: CompositeBox and Fiberboard. As the manager of CompositeBox, you enjoy a patented technology that permits your company to produce boxes faster and at a lower cost than Fiberboard. You use this advantage to be the first to choose its profit-maximizing output level in the market. The inverse demand function for boxes is P = 1200 – 6Q, CompositeBox’s costs are CC(QC) = 60QC, and Fiberboard’s costs are CF(QF) = 120QF. Ignoring antitrust considerations, by how much would your profits increase if you merged with Fiberboard?
$
What is the minimum amount you would have to offer Fiberboard for it to accept your purchase offer?
$
Explanation / Answer
We have, 1200-6Q=60Q
Q=18
and , 1200-6Q=120Q
Q= 10
I) 1200x18 - 6x18
=9552 = TR
Profit= 9552- 60x18
= 8472
II 1140 x 10=11400= TR
Profit= 11400-1200
= 10200
Increase in profit= 10200-8472
= 1728 (Increase )
Amount of offer = 9552-1728
= 7824 (Minimum amount)
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