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Consider an upstream monopolist A which sells wood W to a downstream rm B which sells tables T in a perfectly competitive market. The demand
Consider an upstream monopolist A which sells wood W to a downstream rm B which sells tables T in a perfectly competitive market. The demand for tables is represented by the inverse demand curve P[T) : 200 T. Monopolist A harvests wood at a constant marginal cost m : 3 and sells wood in the monopoly market at a price w{W} The downstream rm B produces tables according to the production function T : min{ W, 2N} where W is the wood from the monopolist and N are nails which are sold at a constant price in = 6. 1. [25 points) Suppose that the rms are separate What is the prot maximization problem for the monopolist A? What is the quantity of wood which is sold, the price of wood wU/V} in equilibrium, and what are the prots of rm A and rm B? 2. [15 points) Suppose the monopolist A vertically integrates with the downstream rm B. What is the quantity of tabla sold, the price of tables sold in equilibrium and the prots of the integrated rm? 3. [10 points) Suppose the production function for the downstream rm is T : WN . Would prots change? If so, why
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