An upstream firm has marginal costs MC = 80. It sells its products to a downstream firm for a wholesale price of p;. The firm downstream resells the goods to consumers for price p. The downstream company has no other costs apart from the price py it pays to the upstream company. The fixed costs of both firms are zero. Consumer demand is givenby Q = D (p) = 1500 - 2p, where p denotes the price, and Q the total quantity offered. Suppose that both firms have a monopoly in their segment of the market. 1500+2py Double Marginalization/Vertical Separation In week 1, we saw thatp; = 415andp = . in the equilibrium. Find: a) equilibrium retail price p b) equilibrium quantity c) respective equilibrium profits of the upstream and the downstream firms d) combined equilibrium profits of the two firms Vertical Integration Now, assuming that the upstream firm merges the downstream firm and operates as the monopolist in the upstream and the downstream market, find: e) equilibrium quantity f) equilibrium price g) equilibrium profit of the merged firm h) Complete the following statements by filling in one of the following: higher, lower, or the same. Compared to the case of vertical separation: e The equilibrium quantity is under vertical integration. e The equilibrium price is under vertical integration. e The total producer surplus is under vertical integration. e The total consumer surplus is under vertical integration