Economics - Vertical Relations
You are the manager of the unique supermarket of the town. A local company wants you to sell its milk. But you have already many other milk in you supermarket. You estimate that you would be able to sell 500L/day of this milk at p = 2. You know that the marginal cost of the local company is 0.5$/L but the manager propose the milk at 1$/L (and will never accept to sell it for less).
a) What will be your profit if you accept the deal?
b) What kind of tariff can you propose to the local company in order to improve your profit?
c) What is your maximal profit in this case?