Reference no: EM133144753

For this question, we will refer to a hypothetical good we'll call a "widget".  There are three firms, A, B, and C who sell widgets once a week at an open-air market where buyers (aka customers) come to purchase their household needs. A, B and C each produce and bring a single widget to sell each week. Assume A, B and C are able to buy inputs for widget production from several input suppliers.  That is, there are numerous (more than 3) input suppliers, each of whom can supply all the necessary inputs needed by A, B and C.  Additionally, assume each widget producer incurs a total cost of $4 to produce one widget, where total cost includes input costs and the opportunity cost of the widget producer's time. Assume the opportunity cost of the widget producer's time is the wage they could have earned in their next best occupation, say as a manager of a retail store.  On a typical week, there are two customers who are each interested in buying one widget. Both buyers have a willingness-to-pay of $9 for each firm's widget.

1. How many widgets will be sold at the market each week? 
2. Do the suppliers of inputs to the widget making firms have bargaining power.  Why or why not?
3. How much value is created when one widget is sold (where value is the customer's WTP minus the widget producer's C)?
4. Given your answer to part C, what is the total value created by widget sales each week -- where total value is the sum of the value created per transaction times the number of transactions.
5. Who has bargaining power in this "game" or in the weekly market for widgets:  Firms, buyers or suppliers and why?