Question

Suppose that the market for fruit is characterized by the inverse demand curve P = 100 − Q. Fruit retailing is controlled by the monopolist FR Inc., which obtains its fruits from the monopoly wholesaler FT Inc. at a wholesale price FR per fruit.

FT Inc. obtains the fruits in turn from the monopoly manufacturer FI Co. at a manufacturing price of FF per fruit. FI Co. incurs marginal costs of $10 per unit in making fruit. FR and FT each incur marginal costs of $5 in addition to the prices that they have to pay for fruit (assume marginal costs = average costs).

What is the profit earned by each firm at their respective equilibrium prices?

Answer 1