In the upstream layer of the industry, there are two suppliers: Supplier 1 and Supplier 2....

 

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In the upstream layer of the industry, there are two suppliers: Supplier 1 and Supplier 2. The Supplier 1's marginal cost of production is 1 and Supplier 2's marginal cost of production is 2. The downstream industry is competitive and buys products from the upstream suppliers at the cost of e and k, respectively. Downstream industry also hires workers at a competitive wage of w=$3. The firms in the downstream produce the final good using the production function Q = E¹/³ K¹/³W¹/³, where E, K, and W are the amount of inputs purchased from Supplier 1, Supplier 2 and labor market, respectively. The inverse demand faced by the downstream industry is P-20-3Q. a) Find the equilibrium prices e, k, and P, quantities E, K, W, and Q, and the profits for all firms in the supply chain. b) Compute prices, output, and profits if downstream and upstream firms would vertically integrate. In the upstream layer of the industry, there are two suppliers: Supplier 1 and Supplier 2. The Supplier 1's marginal cost of production is 1 and Supplier 2's marginal cost of production is 2. The downstream industry is competitive and buys products from the upstream suppliers at the cost of e and k, respectively. Downstream industry also hires workers at a competitive wage of w=$3. The firms in the downstream produce the final good using the production function Q = E¹/³ K¹/³W¹/³, where E, K, and W are the amount of inputs purchased from Supplier 1, Supplier 2 and labor market, respectively. The inverse demand faced by the downstream industry is P-20-3Q. a) Find the equilibrium prices e, k, and P, quantities E, K, W, and Q, and the profits for all firms in the supply chain. b) Compute prices, output, and profits if downstream and upstream firms would vertically integrate.

Answer rating: 100% (QA)

SOLUTION a To find the equilibrium prices quantities and profits for all firms in the supply chain we need to solve a series of equations We start by finding the equilibrium prices and quantities for ... View the full answer