The figure given below represents a perfectly competitive market in long-run equilibrium.LRS represents the long-run supply curve of this market with demand (D) and price $50.When two large firms merge, output declines to 400 units and per unit production cost drops to $30.

-Refer to Figure.What is the net benefit of the merger?
A)$8,000
B)$2,400
C)$7,400
D)$600

Question

The figure given below represents a perfectly competitive market in long-run equilibrium.LRS represents the long-run supply curve of this market with demand (D) and price $50.When two large firms merge, output declines to 400 units and per unit production cost drops to $30.

-Refer to Figure.What is the net benefit of the merger?

-Refer to Figure.What is the net benefit of the merger?
A)$8,000 
B)$2,400 
C)$7,400 
D)$600

Quizplus · Accepted Answer

Before the merger, the market was in long-run equilibrium, producing 600 units at a price of $50. At this point, each firm was producing 300 units at a production cost of $40 per unit, yielding a profit of ($50-$40) x 300 = $3,000 per firm, for a total profit of $6,000 in the market.

After the merger, the market produces 400 units at a price of $50. Each firm is now producing 200 units at a production cost of $30 per unit, yielding a profit of ($50-$30) x 200 = $4,000 per firm, for a total profit of $8,000 in the market.

Therefore, the net benefit of the merger is the increase in profit, which is $2,000 ($8,000 - $6,000).

The Figure Given Below Represents a Perfectly Competitive Market in Long-Run