In a successive monopoly structure, if distributor has a constant marginal cost, the wholesale demand curve will lie below the retail marginal revenue curve.

Question

Quizplus · Accepted Answer

In a successive monopoly structure, the wholesale price is set by the supplier (monopolist) which includes a markup on their constant marginal cost. This markup leads to a higher wholesale price than the distributor's marginal cost. As the distributor sells the product at the retail level, they then set a markup on the wholesale price to arrive at the retail price. Since their marginal cost is constant, the retail price curve will be horizontal at the distributor's marginal cost. The retail demand curve will be higher than the distributor's marginal revenue curve because consumers face a higher price when purchasing from the distributor than the marginal cost of production. Therefore, the wholesale demand curve must lie below the retail marginal revenue curve.

In a Successive Monopoly Structure, If Distributor Has a Constant