Reference no: EM131280546

Consider the following situation: the demand for the new YPhone is given by Q = 10,000 – 5 p where Q is the quantity demanded per day and p is the per-unit price. Note that this can be written as p = 2,000 – Q / 5. Micrap produces these YPhones at a cost of $400, and determines the wholesale price at which to sell to a retailer YurStuf. The retailer YurStuf then sets the retail price. Express the total supply chain profit (the profit of Micrap plus that of YurStuf) as a percentage of the previous scenario where Micrap was an integrated manufacturer/retailer. Hint: First plot the demand curve p = 2,000 – Q / 5. It will be a straight line with a y-axis intercept at p = 2,000 and an x-axis intercept at Q=10,000. Next, note that when the demand curve is linear, it is optimal for the firm to price half-way between its cost and the y-axis intercept (this can be proven using calculus, but you are not asked to do so). Thus the manufacturer sets the wholesale price to be halfway between its cost of $400 and the y-axis intercept of $2,000. The retailer's cost is the price charged by the manufacturer, which is the wholesale price, so the retailer in turn sets its retail price to be halfway between the wholesale price and the y-axis intercept of $2,000.