4.

Autocorp faces the following demand function for its automobiles:

P = 50,000 - 100 Q

Its MC is $10,000.

a. If it decides to sell the automobiles by itself, what is the profit-maximizing price ?

b. Now suppose that Autocorp sells its cars through an independent distributor, SUVmart, which has the exclusive right to sell . Under the contract,

Autocorp sets the wholesale price, and SUVmart selects the quantity to purchase and

the retail price. The only cost facing SUVmart is the wholesale price of the car.

Both companies strive to maximize their own profits. What are (1) the wholesale price and (2) the retail price ?

c. Autocorp might use (1) a two-part pricing scheme, or (2) a quota (an agreement on a minimum purchase requirement) to eliminate this successive monopoly problem with SUVmart. What are (1) the wholesale price and (2) the retail price in each case?

Answer: