Parne Two large American beer producers have decided to merge and seek government approval. They claim that by joining forces th
ey will achieve cost savings related to their large fixed costs such as distribution centers and R&D. To make the case that the merger will benefit the economy, the firms must prove to the government that after the merger... A. Beer prices will go down B. The sum of producer and consumer surpluses in the beer market will increase C. The combined firm will increase its share of the US market at the expense of foreign beer producers D. All cost savings will be invested in domestic beer industry
The correct answer is letter "A": Beer prices will go down.
Explanation:
Usually, when two large companies merge they take most or almost all part of their market causing a monopoly. This implies the recently-merged company to set the price of the goods according to what they believe is suitable which does not necessarily match with the consumers' expectations. However, for the companies in the case to prove the government that the merger will benefit the economy, they must show that the price of the beer will go down which is the opposite of what is expected under other regular situations.
The statement " An industry has one large firm that provides 60% of the supply of the product is called an oligopoly" is false. Because in an oligopoly more than one firm dominate the market and in monopoly only firm is dominant. In Oligopoly there is small number of firms but have the market share in large majority.
