Question

Suppose that consumer​ (retail) demand for a product is given​ by:

Q=100−P​,

where Q is the quantity demanded and P is the price. The inverse demand curve​ (which gives the price as a function of the quantity​ demanded) is:

P=100−Q.

The marginal cost of production and average total cost of production are $26 per​ unit, and the marginal cost of distribution and average total cost of distribution are ​$10 per unit.

Suppose the retail distribution is monopolized by another firm.

The​ profit-maximizing wholesale price will be__?

and the​ profit-maximizing output will be__units?

The​ producer's profit will be__?

The retail quantity will be__units

and the retail price will be__?

The profit of the monopoly retailer will be__?

Should you vertically​ integrate? Which of the following statements explains your​ answer?

A.​No, you should not integrate because your​ pre-merger combined profit is

​$512

while your​ post-merger profit is

​$256.

B.​Yes, you should integrate because your​ pre-merger combined profit is

​$512

while your​ post-merger profit is

​$768.

C.​Yes, you should integrate because your​ pre-merger combined profit is

​$768

while your​ post-merger profit is

​$1,024.

D.​No, you should not integrate because your​ pre-merger combined profit is

​$768

while your​ post-merger profit is

​$256.

Answer 1