Final answer:
The effect of firms in a Cournot duopoly merging into a monopoly impacts prices, profits, and consumer surplus, with prices likely increasing and consumer surplus decreasing. The new firm may produce more efficiently but will face the possibility of zero economic profits in the long term due to market adjustments.
Step-by-step explanation:
When firms in a Cournot duopoly with different marginal costs merge into a monopoly, the resulting impact on variables such as price, profit, and consumer surplus depends on the balance between realized efficiency gains and increased market power. In a Cournot duopoly, each firm decides how much quantity to produce independently but taking into account the other firm's production, leading to specific quantities produced, market prices, and profits for each firm.
After the merger into a monopoly, the new single firm can leverage the more efficient production, potentially of the firm with the lower marginal cost, to set a market price at the intersection of marginal cost (MC) and marginal revenue (MR). As a monopoly, the firm can increase its profits significantly as there is no competition, but this also usually means a higher price for consumers and thus a loss of consumer surplus, as compared with the more competitive pre-merger situation.
However, it's important to remember that in the long run, economic profits for monopolistically competitive firms would normalize to zero due to market entry and competitive pressures. Such pressures can also affect monopolies if there are no strong barriers to entry or if regulatory actions are taken to preserve competition.