Slick Shades has a constant marginal cost of production equal to $40 and the distributors have a constant marginal cost of distribution equal to $20. 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)retail; $60
B)retail; $40
C)wholesale; $60
D)wholesale; $40

Question

Quizplus · Accepted Answer

When Slick Shades vertically integrates with the distributors, it takes over the distribution process as well, meaning it incurs both production and distribution costs. The relevant demand curve is the retail demand curve because the integrated firm is selling directly to the final consumers. The combined marginal cost is the sum of the production and distribution marginal costs, which is $40 (production) + $20 (distribution) = $60.

Slick Shades Has a Constant Marginal Cost of Production Equal