3. Consider a monopolist engine producer and a monopolist car producer. The engine producer has a total cost of 0. Let Pu denote the price chosen by the engine producer. The car producer obtains engines from the engine producer. Each car requires one engine. The car producer has a fixed cost of 0 and a marginal cost of Pu. Let PD denote the price chosen by the car producer. The demand for cars is given by QD = 20 - PD. (a) If the two firms are separate, what is the price and quantity of cars sold? (b) If the two firms are separate, what is the sum of the profits for the two firms? (c) If the two firms vertically integrate, what is the price and quantity of cars sold? (d) If the two firms vertically integrate, what is the profit of the resulting firm?

3. Consider a monopolist engine producer and a monopolist car producer. The engine producer has a total cost of 0. Let Pu denote the price chosen by the engine producer. The car producer obtains engines from the engine producer. Each car requires one engine. The car producer has a fixed cost of 0 and a marginal cost of Pu. Let PD denote the price chosen by the car producer. The demand for cars is given by QD = 20 - PD. (a) If the two firms are separate, what is the price and quantity of cars sold? (b) If the two firms are separate, what is the sum of the profits for the two firms? (c) If the two firms vertically integrate, what is the price and quantity of cars sold? (d) If the two firms vertically integrate, what is the profit of the resulting firm?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Perfect Competition

It is the structure of the market that is said to exist when with many buyers and sellers exchanging similar commodities and its price is fixed by the market forces, demand, and supply, and a single firm cannot cause an impact over the price or market value of the homogenous product. This structure of the market is called perfect competition.

Question

3. Consider a monopolist engine producer and a monopolist car producer. The engine producer
has a total cost of 0. Let Pu denote the price chosen by the engine producer. The car producer
obtains engines from the engine producer. Each car requires one engine. The car producer has
a fixed cost of 0 and a marginal cost of Py. Let PD denote the price chosen by the car producer.
The demand for cars is given by QD = 20 - PD.
(a) If the two firms are separate, what is the price and quantity of cars sold?
(b) If the two firms are separate, what is the sum of the profits for the two firms?
(c) If the two firms vertically integrate, what is the price and quantity of cars sold?
(d) If the two firms vertically integrate, what is the profit of the resulting firm?

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