Suppose that the inverse demand for a downstream firm is 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: A) NMR_d = 140 − 2Q. B) NMR_d = 150 − 2Q. C) NMR_d = 140 − Q. D) NMR_d = 150 − Q.

Question

Quizplus · Accepted Answer

The net marginal revenue (NMR) for the downstream firm is calculated by taking the derivative of the total revenue (TR) minus the total cost (TC). The total revenue is P*Q = (150 - Q)*Q, and the total cost is the sum of the upstream and downstream costs, which are 5Q and 10Q respectively. The derivative of TR - TC with respect to Q gives us the NMR, which simplifies to 140 - 2Q.

Suppose That the Inverse Demand for a Downstream Firm Is