Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

III. An upstream monopoly sells the good x to a downstream monopoly. The downstream monopoly uses this good as an input to produce its output

III. An upstream monopoly sells the good x to a downstream monopoly. The downstream monopoly uses this good as an input to produce its output y. The production function of the downstream monopoly is y = x. The downstream monopoly sells its output to final consumers whose aggregate demand curve is y = 12 p. The upstream monopoly's cost function is c (x)=2x.

a) . Find the quantity x the upstream monopoly sells to the downstream monopoly and the quantity y the downstream monopoly sells to the final consumers. Find also the price k the upstream monopoly charges the downstream monopoly and the price p the downstream monopoly charges the final consumers. Compute the profits of each monopoly.

b) Assume the two monopolies merge into a single monopoly that produces y from x internally (according to the same production function) and sells it directly to the final consumers. What will be the quantity y and the price p of the output? Compute the profits of the merged monopolies

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Reporting And Analysis

Authors: Lawrence Revsine, Daniel Collins

5th Edition

0078110866, 978-0078110863

Students also viewed these Economics questions