If an upstream firm and a downstream firm have a long- term contract regarding the price of an input, a change in the market price of the input can result in either the upstream or downstream firm to incur opportunity cost.

Question

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If the market price of the input increases, the downstream firm may have to pay more than the market price, resulting in an opportunity cost for them. Similarly, if the market price of the input decreases, the upstream firm may have to sell their input for less than the market price, resulting in an opportunity cost for them.

If an Upstream Firm and a Downstream Firm Have a Long-