Suppose a manufacturer sells to a retailer of its product. Final market demand for the product is given by P = a - bQ. The marginal cost of upstream manufacture is c. The unit costs associated with retailing are zero. (A) Suppose that the two stages are integrated and operated by a monopolist. What would the integrated monoply price of the final product be? What is the profit of the integrated monopolist? (B) Now assume that the two stages are not integrated, and in addition, each stage is a separate monopoly. Solve for the input price (that is, the price the manufacturer sets), the final product price, and the profits of each of the two stages.
Suppose a manufacturer sells to a retailer of its product. Final market demand for the product is given by P = a - bQ. The marginal cost of upstream manufacture is c. The unit costs associated with retailing are zero. (A) Suppose that the two stages are integrated and operated by a monopolist. What would the integrated monoply price of the final product be? What is the profit of the integrated monopolist? (B) Now assume that the two stages are not integrated, and in addition, each stage is a separate monopoly. Solve for the input price (that is, the price the manufacturer sets), the final product price, and the profits of each of the two stages.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.6P
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Suppose a manufacturer sells to a retailer of its product. Final market demand for the product is given by P = a - bQ. The marginal cost of upstream manufacture is c. The unit costs associated with retailing are zero.
(A) Suppose that the two stages are integrated and operated by a monopolist. What would the integrated monoply
(B) Now assume that the two stages are not integrated, and in addition, each stage is a separate
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