The final output for a product is comprised of one unit of input from both a wholesaler and a retailer. There is only one wholesaler but there are two retailers. The wholesaler has marginal cost of c=10. The retailers have marginal costs of 0. Final demand is given by P = a – bQ, where a=100 and b=3. The wholesaler can set a two-part tariff, with a fixed-fee F and a per unit fee w. b) Now assume that the retailers are Cournot competitors. Again the wholesaler sets a fixed-fee and a per-unit charge. What is the output level of the retailers,given that the wholesaler has set a per-unit charge of w? What is the maximum fixed fee F that the retailers would be willing to pay?
The final output for a product is comprised of one unit of input from both a wholesaler and a retailer. There is only one wholesaler but there are two retailers. The wholesaler has marginal cost of c=10. The retailers have marginal costs of 0. Final demand is given by P = a – bQ, where a=100 and b=3. The wholesaler can set a two-part tariff, with a fixed-fee F and a per unit fee w. b) Now assume that the retailers are Cournot competitors. Again the wholesaler sets a fixed-fee and a per-unit charge. What is the output level of the retailers,given that the wholesaler has set a per-unit charge of w? What is the maximum fixed fee F that the retailers would be willing to pay?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The final output for a product is comprised of one unit of input from both a wholesaler and a retailer. There is only one wholesaler but there are two retailers. The wholesaler has marginal cost of c=10. The retailers have marginal costs of 0. Final demand is given by P = a – bQ, where a=100 and b=3. The wholesaler can set a two-part tariff, with a fixed-fee F and a per unit fee w.
b) Now assume that the retailers are Cournot competitors. Again the wholesaler sets a fixed-fee and a per-unit charge. What is the output level of the retailers,given that the wholesaler has set a per-unit charge of w? What is the maximum fixed fee F that the retailers would be willing to pay?
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