(QUESTION 1)

1. There are three firms,A, B, and C who sell widgets once a week at an open-air market where buyers (aka customers) come to purchase their household needs.A, B and C each produce and bring a single widget to sell each week.AssumeA, B and C are able to buy inputs for widget production from several input suppliers.That is, there are numerous (more than 3) input suppliers,eachofwhomcansupplyallthenecessaryinputsneededbyA,BandC.Additionally,assume eachwidget producerincurs atotalcostof$4toproduce onewidget,where totalcostincludes inputcostsandtheopportunitycost of the widget producer's time.Assume the opportunity cost of the widget producer's time is the wage they could have earned in their next best occupation, say as a manager of a retail store.On a typical week, there are two customers who are each interested in buying one widget. Both buyers have a willingness-to-pay of $9 for each firm's widget.

FirmA-1aweek-C=$4perwidget

FirmB-1aweek-C=$4perwidget

FirmC-1aweek-C=$4perwidget

Customer1-WTP=$9perwidget

Customer2-WTP=$9per widget

1. Howmanywidgets willbesoldatthemarketeachweek?(showyourmath)
2. Dothesuppliersofinputstothewidget makingfirmshavebargainingpower? Explainwhy/why not?
3. Howmuchvalueiscreated whenonewidgetissold(wherevalueisthecustomer'sWTPminusthe widget producer's C)? (show your math)
4. Givenyouranswertopart3,whatisthetotalvaluecreated bywidgetsaleseachweek--wheretotal value is the sum of the value created per transaction times the number of transactions. (show your math)
5. Whohasbargainingpower inthis"game" orintheweeklymarket forwidgets:Firms, buyersor suppliers? Why? Explain your answer.

QUESTION 2

ConsidertheWTP-Cwedge foratypicalplayerinanaddressablemarket(industryorindustrysegment).

What would be the effect on this wedge of each of the following industry forces?

(visuallyshowtheeffect inthisdiagram, andthendescribe whathashappened andwhy)

Pleaseconsider-1)don't assumeeverythinghappens atthesametime.

Also2)Insomeinstancesitispossible to argue that more than one answer is defendable.

Think aboutwhat happens to the gap between WTP- C if

a. Buyerpowerincreases?

WTP Price CostWTP Price CostWTP Price CostWTP Price CostWTP Price Cost