Satellite Radio Merger. Suppose each of the two satellite radio firms initially has 7 million subscribers and generates negative profit: Average cost exceeds the $13 price. Assume that the marginal...

Satellite Radio Merger. Suppose each of the two satellite radio firms initially has 7 million subscribers and generates negative profit: Average cost exceeds the $13 price. Assume that the marginal cost is constant at $3.5 per subscriber. (Related to Application 2 on page 631.)

a. Use a graph to show the average-cost curve and firm-specific demand curve for one of the two satellite firms.

b. Suppose the two firms merge into a single firm. The profit-maximizing price is $19 and the average cost is $13. Illustrate with a graph.