3.7 Suppose that your company has a patent on a particularly efficient type of nanocrystal solar cell. You sell your solar cells to other companies that manufacture solar panels and sell them to consumers. Some members of your management team have proposed forward integration, taking over the manufacture and sale of solar panels. Ignore any possible reduction in transaction costs or any managerial diseconomies in answering the following questions.

a. If the market for solar panels is perfectly competitive, will the proposed vertical integration increase your firm’s economic profit? Why or why not?

b. If the solar panel producers are making an economic profit, will the proposed vertical integration increase your firm’s economic profit? Why or why not?