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erinrat964Lv1
18 Jun 2020
A large firm has two divisions: an upstream division that is a monopoly supplier of an input whose only market is the downstream division that produces the final output. To produce one unit of the final output, the downstream division requires one unit of the input. If the inverse demand for the final output is P = 1,000 - 80Q, would the company’s value be maximized by paying upstream and downstream divisional managers a percentage of their divisional profits? Explain.
A large firm has two divisions: an upstream division that is a monopoly supplier of an input whose only market is the downstream division that produces the final output. To produce one unit of the final output, the downstream division requires one unit of the input. If the inverse demand for the final output is P = 1,000 - 80Q, would the company’s value be maximized by paying upstream and downstream divisional managers a percentage of their divisional profits? Explain.
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2 Jun 2021
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Match the following.
| constant-cost industry | A market structure in which a large number of firms sell a homogenous product or service with no restrictions on entry or exit and each firm is a price-taker. |
| increasing-cost industry | The demand facing a price-taking firm. |
| long-run equilibrium | A firm produces zero output but must still pay its fixed costs. |
| marginal revenue product | Price below which a firm shuts down in the short run. |
| perfect competition | All firms produce where price equals long-run marginal cost, and economic profits are zero. |
| perfectly elastic demand | Industry in which input prices rise as all firms in the industry expand output. |
| shut down | Industry in which input prices remain constant as all firms in the industry expand output. |
| the shut-down price | The additional revenue earned by hiring one more unit of a variable input. |
