Consider a market with four identical firms, each of which makes an identical product. The demand function of this product is P = 120 - Q where P is the price and Q is the aggregate output, Q = 91 +92 +93 +94. The production costs for firms 1, 2, and 3 are identical and given by C(q) = 20q; for i E {1,2,3,4} where q; is the output of firm i. Assume that each firm chooses her output level to maximize profits given that they act as Cournot competitors. Suppose Firm 3 and Firm 4 merge. Show that the merger paradox exist.
