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I need help with this homework question. Pleas show work so I can follow along Problem 3: Exclusive Dealing (25 points). Two electric car battery
I need help with this homework question. Pleas show work so I can follow along
Problem 3: Exclusive Dealing (25 points). Two electric car battery producers (firm 1 and firm 2) sell a hornogeneous product to one monopoly electric car producer (firm A), the Only consumer Of electric car batteries. Firm 1 has a constant marginal cost MCI = 750 while firm 2 has a constant marginal cost MC2 = 500. Firm A's demand for batteries is given by P = 1, 500 Q. a) If firm 1 and firm 2 compete for firm A's business, what is thc price of batteries? What is the quantity of batteries sold? \Vhat is the surplus of each firm (PSI, PS2, and CS)? b) Firm 1 has an exclusive deal with firm A where they sell for a price Of P = 1, 000. What quantity will they sell? What is the surplus of each firm (PSI, PS2, and CS) now? Would such a deal be signed? Briefly explain. c) Now consider thc same deal between firm 1 and firm A but with an escape clause. In particular, firm A agrccs to pay P 1, 000 per unit from firm 1 and a penalty = 200 for each unit purchased from firm 2. All such penalties go directly to firm 1. (i) What price will firm 2 set now? Which producer will firm A buy from? What quantity will be sold? (ii) What is thc surplus of each firm (PSI, PS2, and CS) in this case? Would such a deal be signed? Briefly explain.
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