Tiger-el is an upstream manufacturer of electric trains that sells wholesale to The Great Toy Store, the only such store in the area. Demand for the trains at the retail store in inverse form is P = 1, 000 - 2Q, where Q is the total number of trains sold. The Great Toy Store incurs no service cost in selling the train. Its only cost is the wholesale price it pays for each train. Tiger-el incurs a production cost of $40 per train.
a. What wholesale price should Tiger-el charge for its trains? What price will these trains sell for at retail? How many trains will be sold?
b. What pro?t will Tiger-el and The Great Toy Store earn under the pricing choices you found in part a.? What is the total pro?t of these two ?rms?
c. Now assume Tiger-el and The Great Toy Store merge into one ?rm and they are maximizing joint pro?ts. What would be the retail price and quantity sold in this case? Calculate the joint pro?ts.
d. Compare the total pro?ts you ?nd in part b. and c.. Which one is greater? Why?