The wholesale price of the HP computer is $p dollars. The computer sells for $r dollars at

Best Buy. HP incurs $c fixed cost and no variable cost. Best Buy incurs $z fixed cost and

no variable cost. The quantity of units sold is q. Assume Best Buy is the only retailer

selling the HP computer. Based on this information, please answer the following (2

points each):

a) What is the profit equation for HP? (i.e. how much profits will the HP make?)

b) What is the profit equation for Best buy?

c) True or false: Best Buy prefers a lower retail price ($r) than HP.

d) Now assume that Target, Walmart, and Amazon are also retailers who sell HP

computers. Please provide an example of horizontal conflict in this channel structure.

e) What is one potential solution that HP can implement to address the conflict you

described in (d)?

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