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Calculate profits for the upstream-downstream firms

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Reference no: EM132066281

Assume that an upstream firm, denoted by U, produces an input at zero cost.

A downstream firm transforms the input into a homogeneous final good on a one-for-one basis at zero marginal cost. Assume, in a first, period, firm U sets the price for the input (w). In a second period, the downstream firm decides how much to produce (Q). Market demand is given by P=1-Q.

Calculate the equilibrium values of P, Q, and w. Calculate profits for the upstream and downstream firms, as well as total profits.

Reference no: EM132066281

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