Suppose that the inverse demand for a downstream firm is by P = 150 - Q.Its upstream division produces a critical input with costs of C_U(Q_d) = 5(Q_d )².The downstream firm's cost is C_d(Q) = 10Q.When there is no external market for the downstream firm's critical input, the net marginal revenue for the downstream firm is

Question

Quizplus · Accepted Answer

The net marginal revenue for the downstream firm is equal to the marginal revenue minus the marginal cost. The marginal revenue is equal to the derivative of the inverse demand function, which is MR = 150 - 2Q. The marginal cost is equal to the derivative of the downstream firm's cost function, which is MC = 10. Therefore, the net marginal revenue is equal to NMR = MR - MC = 150 - 2Q - 10 = 140 - 2Q.

Suppose That the Inverse Demand for a Downstream Firm Is