Question

Vertical Relationship Question

Consider an industry where an upstream monopolist produces at zero cost the sole input needed to produce a final product. One unit of essential input is required to produce one unit of final product. The demand function for the final product is Q-40-p. (a) Assume that the final product is produced by another monopolist (downstream monopolist), which charges the final consumers a linear price p for the sale of the final product. The upstream monopolist charges the downstream monopolist a two-part tariff for the sale of the essential input. The two-part tariff consists of a fixed fee f (independent of the quantity of input bought) and a constant marginal price w (per unit of input bought). Determine the optimal two-part tariff charged by the upstream monopolist, and the resulting industry profit, consumer surplus and total surplus. Indicate also how this two-part tariff splits industry profit between the upstream and the downstream firms. b) Assume now that the downstream market is populated by two identical firms which can use the essential input to produce the final product according to the one-to-one technology mentioned above. The upstream monopolist charges two downstream firms the same two- part tariff for provision of the essential input. Then the two downstream firms compete in prices in the downstream market according to the Bertrand model. Find the optimal two- part tariff set by the upstream monopolist in this case, and the resulting industry profit, consumer surplus and total surplus. Indicate also how this two-part tariff splits industry profit between upstream and downstream firms

Answer 1

Answer -=

Actually the diffrence between the monopoly ...there is the one person or firm and many people...is tHat market which is creating his own price .and other sector there is many people and also many sellors ..thats there is they are creating between them price..and final cost of product is depend upon the other fundamental things like as labour, land ,capital,and entropinor .i think there is second market is profetable to us.we can buy any product in this market.