Consider the model of a vertical market shown in class. Suppose that the supplier sells each unit to the retailer for pw = c, but, in addition, requires the retailer to pay a fixed fraction of the retailer's profits, p. 2 Formulate the retailer's profit-maximization problem under this contract and show that this contract maximizes the total industry profit. That is, show that for any given p, the sum of the supplier's profit and the retailer's profit is equal to the profit made by a vertically integrated monopolist. (Hint: The retailer gets (1 − p) · Ã, rather than л₁. No need to re-do the vertically integrated monopolist's profit. Just take it from the notes.)

Consider the model of a vertical market shown in class. Suppose that the supplier sells each unit to the retailer for pw = c, but, in addition, requires the retailer to pay a fixed fraction of the retailer's profits, p. 2 Formulate the retailer's profit-maximization problem under this contract and show that this contract maximizes the total industry profit. That is, show that for any given p, the sum of the supplier's profit and the retailer's profit is equal to the profit made by a vertically integrated monopolist. (Hint: The retailer gets (1 − p) · Ã, rather than л₁. No need to re-do the vertically integrated monopolist's profit. Just take it from the notes.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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