Slick Shades has a constant marginal cost of production equal to $80 and the distributors have a constant marginal cost of distribution equal to $30. If Slick Shades vertically integrates with the perfectly competitive distributors, the relevant demand curve for the combined firm is the ______demand curve and the combined firm's marginal cost is equal to ______.
A)wholesale; $80
B)retail; $80
C)retail; $110
D)wholesale; $110

Question

Quizplus · Accepted Answer

When Slick Shades vertically integrates with the distributors, the relevant demand curve for the combined firm becomes the retail demand curve. This is because the combined firm now takes on both production and distribution and sells directly to consumers. The marginal cost of the combined firm is equal to the sum of the marginal cost of production and the marginal cost of distribution, which is $80 + $30 = $110. Therefore, the correct answer is C, retail demand curve and a marginal cost of $110.

Slick Shades Has a Constant Marginal Cost of Production Equal