A wholesaler (upstream firm) sells a product to a retailer (downstream firm). Both the wholesaler and the retailer are monopolists. The wholesaler faces a constant marginal cost of $2 and charges the retailer a wholesale price w. The retailer resells the product to final consumers at price Pand the wholesale price w is its only cost. The demand for the good is P = 12 - Q. For your calculations below, assume that both the P and w are measured in dollars per unit. Hint The retailer's profit function is = (P – w)Q. Find the profit-maximizing retail and wholesale prices and quantities.

A wholesaler (upstream firm) sells a product to a retailer (downstream firm). Both the wholesaler and the retailer are monopolists. The wholesaler faces a constant marginal cost of $2 and charges the retailer a wholesale price w. The retailer resells the product to final consumers at price Pand the wholesale price w is its only cost. The demand for the good is P = 12 - Q. For your calculations below, assume that both the P and w are measured in dollars per unit. Hint The retailer's profit function is = (P – w)Q. Find the profit-maximizing retail and wholesale prices and quantities.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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