. Assume that there is a market with 10 upstream intermediate-good producers and 10 downstream final-good...

. Assume that there is a market with 10 upstream intermediate-good producers and 10 downstream final-good producers. Four of these firms are vertically integrated leaving 6 independent upstream firms and 6 independent downstream firms. Each upstream firm has a constant marginal cost equal to 0. The only cost to the independent downstream firms is the price of the intermediate good. The inverse demand in the final-good market is P = 100 – QF. One unit of the intermediate good is needed to make one unit of the final good.

a. Determine the equilibrium prices in the downstream market and the independent upstream market. Show your work.

b. Determine what happens to the equilibrium prices in the downstream market and the independent upstream market if one more independent upstream firm merges with one of the remaining independent downstream firms. Show your work.

Expert Solution

Rahul Sunny answered 2 years ago

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