Two physical therapy firms want to merge. The price elasticity of demand for physical therapy is -0.40. Firm A has a volume of 10,400, fixed costs of $50,000, marginal costs of $20, and a market share of 8%. Firm B has a volume of 15,600, fixed costs of $60,000, marginal costs of $20, and a market share of 12%. The merged firm has a volume of 26,000, fixed costs of $100,000, marginal costs of $20, and a market share of 20%.
a. What are the total costs, prices, revenues, and profits for each firm and for the merged firm?
b. How does the merger affect mark-ups and profits?