YIJC 2024 JC2 H2 Prelim Essay Q2 Suggested Answer

Suggested Answer for Q2 Suggested answer for (a) Introduction Firms can pursue 2 types of growth - internal expansion and external expansion. An external expansion may occur in the form of a merger which is the result of a mutual agreement of two firms to come together. With a primary objective to raise profits, Strides Taxi and Premier Taxis decided to merge to raise the TR or reduce the TC for both firms to achieve this aim. R1: Explain how merger between the 2 firms can lead to a rise in TR A merger between Strides Taxi and premier Taxis can lead to a rise in total revenue. With the merger, the firms now become one firm and faces a larger demand due to an increase in market share. This rise in demand brings about an increase in both the price and quantity for the firm. At the same time, gaining market share also means fewer competitors in the market so the firm will then face a more price inelastic demand. This allows the firm to raise prices or to engage in some form of price discrimination. The quantity demanded will decrease less than proportionate to the price increase and total revenue will increase. 2 Strides Taxi and Premier Taxis have merged to form Strides Premier, now Singapore's second-largest taxi operator with 2,500 taxis, behind ComfortDelGro's 8,700 taxis. Unlike the 2018 Grab-Uber merger, which led to a S$13 million fine, the Strides Premier merger raised no concerns from the Competition and Consumer Commission of Singapore (CCCS). (a) Explain two reasons why Strides Taxi and Premier Taxis decided to merge . [10] (b) Discuss the factors that governments should consider in its decision to intervene in a merger. [15] 1st Requirement: Candidates are to e xplain how merger between the 2 firms can lead to a rise in TR 2nd Requirement: Candidates are to explain how merger between the 2 firms can lead to a fall in TC Figure 1

With reference to Figure 1 above, the merger increases the AR from AR0 to AR1 and at the same time making it less price elastic. Assuming MC and AC to be constant, the increase in AR from AR0 to AR1 leads to an increase in total revenue from 0P0bQ0 to 0P1fQ1. As a result, total profits increases from P0AC0cb to P1fgAC1. R2: Explain how merger between the 2 firms can lead to a fall in TC A merger between Strides Taxi and premier Taxis can lead to a fall in total cost. This is due to the fact that the firm can increase its scale of production, which could allow it to reap more internal economies of scale and lower average cost of production. In the taxi industry, with an increase in output, the merged firm would be able to enjoy the various economies of scale such as financial economies of scale where the merged firm will be able to ge