The downstream marginal costs of additional inputs used by the downstream monopolist and the peripheral enterprises, respectively, are denoted by w and v.
The downstream company sells the output at a price higher than the vertically integrated optimal pricing since, prior to the merger, the upstream monopolist sold the input at a price above marginal cost.
Because the monopolist lowers the price to sell more, notice that the marginal revenue is smaller than the price. The following formula expresses the link between a monopolistic firm's marginal and average revenue: Both MR and AR have negative slopes, or downward slopes.
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