Assume the cost data is for a
- Assume the cost data is for a perfectly competitivefirm:
|
Q |
AFC |
AVC |
ATC |
MC |
|
1 |
60 |
45 |
105 |
45 |
|
2 |
30 |
42.5 |
72.5 |
40 |
|
3 |
20 |
40 |
60 |
35 |
|
4 |
15 |
37.5 |
52.5 |
30 |
|
5 |
12 |
37 |
49 |
35 |
|
6 |
10 |
37.5 |
47.5 |
40 |
|
7 |
8.57 |
38.57 |
47.14 |
45 |
|
8 |
7.5 |
40.63 |
48.13 |
55 |
|
9 |
6.67 |
43.33 |
50 |
65 |
|
10 |
6 |
46.5 |
52.5 |
75 |
- Complete the following table:
|
P = 56 |
P = 40 |
P = 32 |
|
|
Will this firm produce in the short run (yes or no)? |
|||
|
What is the profit maximizing output? |
|||
|
What economic profit or loss? |
- What is the long run equilibrium price?
- What is the shut-down price?
|
MKT % |
Brewery |
|
41 |
AB InBev |
|
14 |
Molson Coors |
|
12 |
SAB Miller |
|
6 |
Constellation |
|
4 |
Heineken |
|
1.5 |
Yuengling |
|
1.5 |
Samuel Adams |
|
1 |
20 others |
- ) Use the above market share date to answer the followingquestions. Show your work.
- What is the four-firm concentration ratio before themerger?
- What is the industry HHI before the merger?
- AB InBev and SAB Miller propose a merger. What is the industryHHI after the merger?
- Using the HHI results, explain your recommendation for themerger (block or approve)
Answer:
a)
At Price 56, the equilibrium quantity is Q=8, because beyondQ=8, the Marginal Cost MC > Price of 56
Profit = TR – TC
=PQ – ATC*Q
=56*8 – 48.13*8
=62.96
The firm will produce in the short-run
The profit-maximizing output = Q =8
Economic profit = 62.96
At Price 40, the equilibrium quantity is Q=6, because beyondQ=6, the Marginal Cost MC > Price of 40
Profit = TR – TC
=PQ – ATC*Q
=40*6 – 47.5*6
=-45
The average variable cost at Q =6 is 37.5
Since the Price of 40 > average variable cost of 37.5, thefirm will produce in the short-run
The profit-maximizing output = Q =6
Economic loss = -45
At Price 32, the equilibrium quantity is Q=0, because Price of32 is lower than the average variable cost at each level ofoutput
Profit = TR – TC
=PQ – TFC
=0- 60
=-60
Since the Price of 32 <average variable cost atall levels of output, the firm will not produce in theshort-run
The profit-maximizing output = Q =0
Economic loss= TFC = 60
| P = 56 | P = 40 | P = 32 | |
| Will this firm produce in the short run (yes or no)? | Yes | Yes | No |
| What is the profit-maximizing output? | 8 | 6 | 0 |
| What economic profit or loss? | Economic Profit = 62.96 | Economic loss = -45 | Economic loss = 60 |
b.
The long-run equilibrium price is the minimum of the averagetotal cost, that is 47.14
c.
The shutdown price is the minimum of average variable cost, thatis 37
———————————————————————————————————————————————————-
The market share of different companies in the Brewery industryis:
| Brewery | MKT % |
| AB InBev | 41 |
| Molson Coors | 14 |
| SAB Miller | 12 |
| Constellation | 6 |
| Heineken | 4 |
| Yuengling | 1.5 |
| Samuel Adams | 1.5 |
| 20 others | 1 |
A.
The four-firm concentration ratio before the merger = 41 + 14 +12 + 6 = 73%
B
The industry HHI before the merger is:
| Brewery | MKT % | Square of the Market Share |
| AB InBev | 41 | 1681 |
| Molson Coors | 14 | 196 |
| SAB Miller | 12 | 144 |
| Constellation | 6 | 36 |
| Heineken | 4 | 16 |
| Yuengling | 1.5 | 2.25 |
| Samuel Adams | 1.5 | 2.25 |
| Other – Firm1 | 1 | 1 |
| Other – Firm2 | 1 | 1 |
| Other – Firm3 | 1 | 1 |
| Other – Firm4 | 1 | 1 |
| Other – Firm5 | 1 | 1 |
| Other – Firm6 | 1 | 1 |
| Other – Firm7 | 1 | 1 |
| Other – Firm8 | 1 | 1 |
| Other – Firm9 | 1 | 1 |
| Other – Firm10 | 1 | 1 |
| Other – Firm11 | 1 | 1 |
| Other – Firm12 | 1 | 1 |
| Other – Firm13 | 1 | 1 |
| Other – Firm14 | 1 | 1 |
| Other – Firm15 | 1 | 1 |
| Other – Firm16 | 1 | 1 |
| Other – Firm17 | 1 | 1 |
| Other – Firm18 | 1 | 1 |
| Other – Firm19 | 1 | 1 |
| Other – Firm20 | 1 | 1 |
| HHI | 2097.5 |
The industry HHI before the merger is 2097.5
C.
AB InBev and SAB Miller propose a merger
The combined market share of AB InBev and SAB Miller = 53%
The industry HHI after the merger is:
| Brewery | MKT % | Square of the Market Share |
| AB InBev and SAB Miller | 53 | 2809 |
| Molson Coors | 14 | 196 |
| Constellation | 6 | 36 |
| Heineken | 4 | 16 |
| Yuengling | 1.5 | 2.25 |
| Samuel Adams | 1.5 | 2.25 |
| Other – Firm1 | 1 | 1 |
| Other – Firm2 | 1 | 1 |
| Other – Firm3 | 1 | 1 |
| Other – Firm4 | 1 | 1 |
| Other – Firm5 | 1 | 1 |
| Other – Firm6 | 1 | 1 |
| Other – Firm7 | 1 | 1 |
| Other – Firm8 | 1 | 1 |
| Other – Firm9 | 1 | 1 |
| Other – Firm10 | 1 | 1 |
| Other – Firm11 | 1 | 1 |
| Other – Firm12 | 1 | 1 |
| Other – Firm13 | 1 | 1 |
| Other – Firm14 | 1 | 1 |
| Other – Firm15 | 1 | 1 |
| Other – Firm16 | 1 | 1 |
| Other – Firm17 | 1 | 1 |
| Other – Firm18 | 1 | 1 |
| Other – Firm19 | 1 | 1 |
| Other – Firm20 | 1 | 1 |
| HHI | 3081.5 |
The industry HHI after the merger is 3081.5
D.
Before the merger, HHI is 2097.5 and after the merger, HHI is3081.5
HHI values of more than 2,500 represent a highly concentratedindustry.
Hence, the merger should be blocked
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
