Consider an industry with one manufacturer (M) and one retail firm ( R ). The manufacturer produces a homogenous good at a marginal cost of 20. The retailer buys the product from the manufacturer at a linear wholesale price of w and sells to final consumers. Retailer R has no additional marginal cost except the wholesale price. Total demand in the industry is given by

D(p) = 380 - p

Where p is the final retail price.

1. What is the optimal price p for retailer R and what is the quantity sold as a function of the wholesale price?
2. Using the retailer's optimal price strategy from (a), what is the profit maximising wholesale price for the manufacturer M? calculate the total industry profits and consumer surplus.
3. The manufacturer and the retailer merge into one company. Which price does the merged company charge to consumers? What are industry profits and consumer surplus?
4. Compare the prices, industry profits and consumer surplus in b) and c) and explain the difference

Suppose there are two retailers, R1 and R2, selling to final consumers. Retailer R1 has marginal retail cost of zero while R2 has a marginal retail cost of 10. The total marginal cost of a retailer is its marginal retail cost plus the manufacturer's wholesale price w.

1. Suppose the retailers compete in prices downstream and the manufacturer supplies the good at a price w to both retailers. What is the downstream equilibrium price? Give the demand for the manufacturer's product. calculate the manufacturer's optimal price w and its profits.
2. Compare with the equilibrium outcome in b). does the manufacturer have an incentive to foreclose one of the retailers and only sell through its rival? Explain