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I really need help with 5 - 11 Consider two firms. Iherstrm is based in Slovenia and produces ball bearings (upstream rm). The cost of
I really need help with 5 - 11
Consider two firms. Iherstrm is based in Slovenia and produces ball bearings (upstream rm). The cost of producing bail bearings is 6 per unit. The second rm is based in Greece. This rm produces machines (downsn'eamrm). To produce one machine, the Greek rm must buy 2 ball bearings (ignore shipping costs between Slovenia and Greece). In addition, for each machine it makes, it has a production cost of4 per machine. Machines are then said according to the demand curve: P = 240 2Q where P is the price of a machine and Q is the totalr number of machines said. For the next four questions, assume that both rms are monopolists. 1. (5 points) Write down the prot function for the Greek rm, knowing that it imports ball bearings from the Slovenian supplier (Hint: Given the use of 2 ball bearings per machine, what is the total cost paid for ball hearings to produce one machine?) 2. (5 points) Taking the price of ball bearings as given, solve for the optimal quantity of machines produced and sold by the Greek producer. 3. (7 points) Write down the prot function for the Slovenian ball bearings supplier. Substitute for the quantity demanded using the demand coming from the Greek machine producer. (Hint: recall that the demand for ball bearings is 2 times the quantity of machines produced) 4. (10 points) Calculate: a. the equilibrium price of ball bearings b. the equilibrium price of a machine c. the quantity of machines produced and sold (1. the quantity of ball bearings produced and sold e. the prots of the Slavenian rm f. the prots of the Greek rm Suppose now that the Greek rm becomes a multinational corporation by acquiring the Slovenian supplier. In doing so, it must pay a xed cost of 1,000 to the Greek government (Hint: treat this payment fee in the same way you would treat a xed cost of production). 5. (5 points) Write down the prot function of the Greek multinational rm, combining the prots 'om each production plant (in Greece and in Slovenia). 6. (8 points) What would be the optimal quantity of machines produced by the Greek MNC? What would be the equilibrium price of machines? What would be the total prot earned by the MN C? How do these values compare to the previous scenario when the two rms acted as independent enterprises? 7. (5 points) Calculate the price of ball bearings that would ensure the same prot for the Slovenian subsidiary as that earned when acting as an independent monopolist. 8. (Spoints) Using the price of ball bearings determined in the question above, calculate the prot earned by the Greek plant. (Hint: the calculated prot should be equal to the total prots for the MNC minus the prots of the Slovenian ailiate) 9. (5 points) Now assume that the Greek machine producer buys the ball bearings from the Slovenian subsidiary at cost. In this case, what is the quantity of machines produced by the Greek plant? What is the equilibrium price of a machine? What is the prot earned by the Greek producer? What is the prot earned by the Slovenian subsidiary? What is the total prot earned by the MNC? How do your calculations compare to answers from question 6? 10. (5 points) Explain the \"double marginalization" concept and how it operates in this context. What is the main reason causing the double marginalization problem? 11. [5 points] Explain the \"hold-up\" problem. When does it arise and how is it related to the \"double marginalization\Step by Step Solution
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