Sonia Music Entertainment (SME) is an American company that holds copyrights of popular songs. Consider a supply chain where SME sells songs to iTones at price $w, which in turn sells songs to customers at price Sp. The demand for the song is not random, but is sensitive to price, given by D(p) = 240-120p. Consider two scenarios as follows: () SME and iTones sign on a wholesale price contract, where the two firms make isolated decisions; that is, SME first determines $w to maximize its own profit and then iTunes sets $p to maximize its own profit. The total supply chain profit, i.e., the sum of the profits for SME and iTunes, is $X. (ii) SME and iTones merge into a single firm. The profit of the integrated firm is $Y. What is Y- X? O 10 15 O 25 O 45 O 30

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Sonia Music Entertainment (SME) is an American company that holds copyrights of
popular songs. Consider a supply chain where SME sells songs to iTones at price
$w. which in turn sells songs to customers at price $p. The demand for the song is
not random, but is sensitive to price, given by Dlp) 240-120p. Consider two
scenarios as follows:
(1) SME and iTones sign on a wholesale price contract, where the two firms make
isolated decisions; that is, SME first determines $w to maximize its own profit and
then iTunes sets $p to maximize its own profit. The total supply chain profit, i.e.,
the sum of the profits for SME and iTunes, is $X.
(i) SME and iTones merge into a single firm. The profit of the integrated firm is $Y.
What is Y - X?
O 10
O 15
O 25
O 45
30
o o
Transcribed Image Text:Sonia Music Entertainment (SME) is an American company that holds copyrights of popular songs. Consider a supply chain where SME sells songs to iTones at price $w. which in turn sells songs to customers at price $p. The demand for the song is not random, but is sensitive to price, given by Dlp) 240-120p. Consider two scenarios as follows: (1) SME and iTones sign on a wholesale price contract, where the two firms make isolated decisions; that is, SME first determines $w to maximize its own profit and then iTunes sets $p to maximize its own profit. The total supply chain profit, i.e., the sum of the profits for SME and iTunes, is $X. (i) SME and iTones merge into a single firm. The profit of the integrated firm is $Y. What is Y - X? O 10 O 15 O 25 O 45 30 o o
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