. Suppose a manufacturer and its retailer face the problem of doublemarginalization described in my notes, Section 11.1. If the manufacturersets the wholesale price equal to its marginal cost c and in addition,requires the retailer to pay a fraction a (between 0 and 1) of its profit.4.aWrite down the retailer's profit maximization problem. Willthis practice solve the double marginalization problem? (That is, will thispractice maximize their joint profit?)4.bSuppose the retailer is required to pay a fraction of a of itssales (i.e., total revenue). Write down the retailer's profit maximizationproblem. Will this practice solve the double marginalization problem?

Profit is the difference between total revenue and total cost. The total revenue is the revenue that…

Suppose a manufacturer and its retailer face the problem of double marginalization described in my notes, Section 11.1. If the manufacturer sets the wholesale price equal to its marginal cost c and in addition, requires the retailer to pay a fraction a (between 0 and 1) of its profit.

Suppose a manufacturer and its retailer face the problem of double marginalization described in my notes, Section 11.1. If the manufacturer sets the wholesale price equal to its marginal cost c and in addition, requires the retailer to pay a fraction a (between 0 and 1) of its profit.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose a manufacturer and its retailer face the problem of double
marginalization described in my notes, Section 11.1. If the manufacturer
sets the wholesale price equal to its marginal cost c and in addition,
requires the retailer to pay a fraction a (between 0 and 1) of its profit.
4.a
Write down the retailer's profit maximization problem. Will
this practice solve the double marginalization problem? (That is, will this
practice maximize their joint profit?)
4.b
Suppose the retailer is required to pay a fraction of a of its
sales (i.e., total revenue). Write down the retailer's profit maximization
problem. Will this practice solve the double marginalization problem?

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