EX-9

Vertical Relations and Double Marginalization. An international monopolist produces at zero marginal cost ($MC = 0$). Demand in a country is $P = 200 - Q$.

Suppose the monopolist sells directly to consumers. Calculate the equilibrium quantity, price, and profit.

Same setup ($MC = 0$, $P = 200 - Q$). Now the monopolist sells through one exclusive distributor. Timing: the monopolist sets a wholesale price $w$; then the distributor chooses how many units to sell to consumers.

Calculate the wholesale price $w$, final market price, quantity sold, the monopolist's profit, and the distributor's profit.

Is there an alternative arrangement that could improve the profit of at least one party without reducing the profit of the other? Explain.

Vertical Relations: Conceptual. A manufacturer sells through an independent retailer and chooses between a wholesale-price contract (price $w$ per unit) and a franchise contract (fixed fee $F$ plus $w = MC$). No calculations required.

Which contract is more likely to maximise total industry profit?

Which contract gives the manufacturer greater flexibility in extracting profit?

Explain the role of double marginalization.

Perfect Competition: Long-Term Rental vs. Airbnb. Danny and Yossi own identical apartments. Danny furnishes his and rents to tourists via Airbnb; Yossi rents his empty to long-term tenants. A long-term rental is let empty; an Airbnb unit must be furnished.

How can the difference between Danny's and Yossi's choices be explained?

Assume all apartments are identical, furniture wears out completely within one year and must be replaced, and the annual cost of furniture is 10,000 NIS. What must be the difference between annual Airbnb income and annual long-term rental income in long-run equilibrium if both types coexist?

Perfect Competition. Inverse industry demand is $P = \dfrac{1000}{X}$ ($X$ = total output). Each firm's cost is $C(x) = 12.5 + 0.5x^2$, so $MC(x) = x$, $AC(x) = \dfrac{12.5}{x} + 0.5x$, $AVC(x) = 0.5x$. There are 10 identical firms in the short run.

Find the short-run equilibrium price, each firm's output, total industry output, and each firm's profit.

What happens in the short run, with the number of firms fixed, if demand decreases? Explain and show graphically.

What happens in the short run if a technological improvement reduces both marginal cost and average cost at every output level? Explain and show graphically. No calculation required.

Compare the long-run outcomes following a demand decrease and a technological improvement. Explain and show graphically. No calculation required.