Reference no: EM131685661

Question: In the example of the pin makers who each owned specialized equipment, sales of half-finished pins between them are costly transactions. As noted in the text, each of them has market power as both buyer and seller, and as a group they are known as "successive monopolists." Wire cutter A will maximize his profit by charging point filer B a price above his costs, which will lower the amount B wishes to buy. Point filer B will take a further markup when reselling to C, who will in turn sell to D at a price that is further marked up. When each worker exercises his market power in this way the group will produce so few pins that each makes a smaller profit than if they sell and resell partially finished pins to each other at cost. Show that their total profits from acting individually are less than their profits when each worker pays his predecessor on the line that person's marginal cost of pins.