Suppose that market demand is linear, q = 70 - p. Marginal costs are constant and equal to 10. The upstream firm, which is a manufacturer, does not sell directly but through a single downstream firm, which is a retailer. The manufacturer set the wholesale price w at stage 1. At stage 2, the retailer who is assumed not to incur any costs except wholesale price (w), observes the wholesale price and sets the retail price p.
Part 5 6 7 8 9 solution needed
Suppose that market
1.Find the optimal wholesale price (w*):
2.Find the optimal retail price (p∗):
3.Find the quantity demanded (q∗) that corresponds to p∗:
4.Find the manufacturer’s profit (π*M) that corresponds to p∗:
5.Find the retailer’s profit (π∗R) that corresponds to p∗:
6.Find the overall channel profit (Π∗ = π*M+ π*R):
Next, consider a case that the integrated firm produce the product and sell directly to consumers. Suppose the market demand is q = 70 - p. Marginal costs are constant and equal to 10.
7.Find the optimal retail price (pi):
8.Find the quantity demanded (qi) that corresponds to pi :
9.Find the firm’s profit (πi) that corresponds to pi :
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