Economics assignment Example | Topics and Well Written Essays - 750 words

Economics - Assignment Example To avoid this situation particularly when it is occasioned by the fact that the involved firms receive inputs from input suppliers and are attempting to innovate to produce differentiated products and even seeking patent of those products, is by the firms involved getting integrated vertically so that they can reduce some of the dead weight losses. Sometimes it would be necessary that the firms involved within the particular supply chain get to mergers and acquisition. One of the ways in which double marginalization may be solved is by Suppressing the Double marginalization. This can be done by avoiding the firms involved in unnecessarily applying for mark-ups over the cost of their own outputs; rather, they should increase their overall profits through internal suppression of the double marginalization. This should be strategically done by ensuring that they transfer the intermediate costs of the products they have through the application of a single optimal mark-ups. The above solution coincides with the profit maximization solution of innovating and producing up to the point where marginal cost equal marginal revenue. Like any other good practice in profit maximization in business, overcoming double marginalization solves the problem of losses. in the case of application of the marginal cost equals to marginal cost revenue, a firm will attempt to produce that additional production which will assure it of additional revenue. At the point where the marginal cost rises to equal the marginal revenue, it can then be said that the firm is maximizing the profit. The rule usually demands that; in the event that the marginal cost gets greater than marginal revenue, the firm must cut down on its cost. This is why by avoiding the dead weight loss through the reduction of double marginalization; the firm automatically reduces on its cost. 2) Suppose firms A and B are going head to head developing new products