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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.
Despite the absence of patent protection, Semi-Salt has averaged accounting profits of 5.5 percent on investment since it began producing polyglutamate- a rate comparable to the average rate of interest that large banks paid on deposits over this ..
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At the consumer's optimum:
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(a) an increase in the price of a gross substitute for labor, (b) a decrease in the price of a pure complement in production with labor, (c) a decrease in the demand for the product that the labor helps produce.
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