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Monopoly U, whose marginal cost is equal to 0, sells intermediate good to monopoly D at price pu. Monopoly D uses the intermediate good to
Monopoly U, whose marginal cost is equal to 0, sells intermediate good to monopoly D at price pu. Monopoly D uses the intermediate good to produce the final good. It has no other cost of production but the cost of buying the intermediate good from monopoly U. Monopoly D sells the final good to consumers whose demand is given by q(pd) = 1 pd
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