Lecture 9 - Vertical Integration Flashcards
1
Q
The Vertical Setting?
A
Upstream firm (e.g., manufacturer): - Constant marginal cost: C(qmf)=m*qmf
Downstream firm (e.g., retailer):
- Produces a unit of output for each unit of input
- For each unit of input, pays the wholesaler price w
- Has no other costs
Consumers:
- Inverse demand: p(Q)=a-bQ
2
Q
What is the MC of the Retailer?
A
w(qmf) in example: The Wholesale Price
3
Q
What is the MR of the Retailer?
A
The MR of the Retailer is the Demand faced by the Manufacturer!!!
4
Q
Given the production technology of the retailer, what is the relationship between the following two variables qmf and Q?
A
It must hold that qmf=Q
