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Question on vertical integration: Consider the market for a good with an inverse demand curve given by p(q) = 100 - 1/3q The market is served by a quantity-setting monopolist retailer. The retailer faces the cost function cr(q) = q(10 + w) where w is the wholesale price charged to the retailer by the manufacturer of the good. Note that the 10 in the cost function above does not go to the manufacturer, only the w (you can think of this as a per-unit fee charged by an exogenous shipping company who transports the goods between the manufacturing plant and the retailer). The manufacturer is also a monopoly and sells the good exclusively to the retailer. The manufacturer sets the wholesale price, and faces the cost function cm(q) = 18q. (a) Derive the wholesale demand curve faced by the manufacturer, as a function of w. (b) Calculate the equilibrium w, q, and p. (c) Calculate manufacturer profit, retailer profit, and deadweight loss. Hint - this is tricky to graph, so you need to be very careful here. (d) Calculate the equilibrium q and p if the retailer and manufacturer merge into a single, vertically integrated firm. (e) Calculate total profit and deadweight loss in the merged case. How does this compare to (c)?
since the AC curve in the problem is upward-sloping everywhere, it is not possible to construct a zero-profit equilibrium given the assumptions of the problem this outcome requires a U-shaped AC curve.
A function of government is to regulate natural monopolies. Describe what is a natural monopoly and why it needs government regulation
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in the diagram above discuss the implication to economic efficiency of an economy operating at point x .v. operating on
When obama was campaiging for president in 2008 he proposed more government spending paid for with higher taxes on the rich. What impact would those options have on the equilibrium?
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