How the efficiency may increase if two firms merge? - Vidyadip

Question

How the efficiency may increase if two firms merge?

✓

Answer

Suppose that initially there are two firms in an industry and both are same but inefficient.
Their MC curves are at a high level and consequently they charge a higher price and produce less.
They realize, however, that if they merge with each other - and thereby become a monopoly-they can reduce their cost.
For instance, one firm may have excellent technical manpower but may not have good marketing skills, whereas the other may not have good technical manpower but possesses superior marketing knowledge by merging the resulting monopoly firms MC curve will be at a lower level and thus it will be more efficient firm.
This, by itself will induce the monopoly to charge a price which HR is less and produce a quantity which is greater than when both firms were competing with each other.

Need a full question paper?

Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.

Start Generating Free

Explore more

More "3 Marks Question" from Non-Competitive Markets→Non-Competitive Markets — all question types→Economics STD 12 Humanities & Commerce question papers→Rajasthan Board STD 12 Humanities & Commerce question papers→Rajasthan Board question paper generator→

Similar questions

From the following information about a firm, calculate Average Product and Marginal Product.

Labour	10	20	30	40	50
Total Product	100	220	360	460	500

Define an indifference map. Why does an indifference curve to the right show more utility? Explain.

Make a graphical representation of the following table -

(Units)	(Total Utility)	(Marginal Utility)
1	12	12
2	18	6
3	22	4
4	24	2
5	24	0
6	22	-2

Explain the concept of a production function.

Can MC increase when AC falls?

What is maximum price ceiling? On what type of goods is it normally imposed? Use diagram.

Name two sources each of non-tax revenue receipts.

Complete the following table:

Output (units)	Total Revenue (₹)	Marginal Revenue (₹)	Average Revenue (₹)
1	14	-	-
2	24	-	-
3	24	-	-
4	16	-	-

Are the following a part of country's Net Domestic Product at Market Price? Explain.

Net Indirect Taxes.
Net exports.
Net Factor Income from Abroad.
Consumption of fixed capital.

Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the minimum of AVC? Give an explanation.