1) Suppose that market demand is linear, q = 70 - p. Marginal costs are constant and equal to 10. The upstream firm, which is a manufacturer, does not sell directly but through a single downstream firm, which is a retailer. The manufacturer set the wholesale price w at stage 1. At stage 2, the retailer who is assumed not to incur any costs except wholesale price (w), observes the wholesale price and sets the retail price p.    Find the optimal wholesale price (w*):    Find the optimal retail price (p∗):   Find the quantity demanded (q∗) that corresponds to p∗:   Find the manufacturer’s profit (π*M

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

1) Suppose that market demand is linear, = 70 - p. Marginal costs are constant and equal to 10. The upstream firm, which is a manufacturer, does not sell directly but through a single downstream firm, which is a retailer. The manufacturer set the wholesale price at stage 1. At stage 2, the retailer who is assumed not to incur any costs except wholesale price (w), observes the wholesale price and sets the retail price p

 

Find the optimal wholesale price (w*): 

 

Find the optimal retail price (p∗):

 

Find the quantity demanded (q∗) that corresponds to p∗:

 

Find the manufacturer’s profit (π*M) that corresponds to p∗:

 

Find the retailer’s profit (π∗R) that corresponds to p∗: 

 

Find the overall channel profit (Π∗ = π*M+ π*R):

 

Next, consider a case that the integrated firm produce the product and sell directly to consumers. Suppose the market demand is = 70 - p. Marginal costs are constant and equal to 10.

Find the optimal retail price (pi): 

 

Find the quantity demanded (qi) that corresponds to pi :

 

Find the firm’s profit (πi) that corresponds to p:

Expert Solution
steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Production & Pricing Decisions
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education