Price is set in a market by a dominant firm price leader (L = Leader). Total Market Demand is P = 10,000-20*QT. The dominant firm price leader’s (L = Leader or Dominant Firm) total cost is TCL = 60*QL + 1.5*QL2. The competitive fringe supply (F = Fringe) is SF = PL = 100 + 2QF. Determine the quantity that will be produced and sold by the Dominant Firm. The Dominant Firm quantity =

Competitive fringe of small businesses with leading companies or several well-known companies in what is known as a competitive industry. Competing companies have no market power, so market value is paid for.Given, P = 10,000 - 20QT 20QT = 10,000 - P QT = 500 - 0.05P so, the competitive fringe supply is: SF = P = 100 + 2QF P = 100 + 2QF P - 100 = 2QF QF = 0.5P - 50 Demand function for the dominant firm is: QL = QT - QF QL = 500 - 0.05P - 0.5P + 50 QL = 550 - 0.55P 0.55P = 550 - QL P = 1000 - QL/0.55 P = 1000 - 100QL/55 P = 1000 - 20QL/11 Demand function for the dominant firm or leader is: P = 1000 - 20QL/11 So, MRL = 1000 - 2(20QL/11) MRL = 1000 - 40QL/11 TCL = 60QL + 1.5Q2L (Given) MCL = 60 + 3QL Hence, The profit-maximizing condition is MRL = MCL 1000 - 40QL/11 = 60 + 3QL 1000 - 60 = 3QL + 40QL/11 940 = (33QL + 40QL)/11 10,340 = 73QL QL = 141.64Thus, the quantity produced by dominant firm is QL = 142 P = 1000 - 20QL/11 P = 1000 - 20(142)/11 P = 1000 - 2840/11 P = 741.85 The dominant firm price is P = 742

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Price is set in a market by a dominant firm price leader (L = Leader). Total Market Demand is P = 10,000-20*Q_T. The dominant firm price leader’s (L = Leader or Dominant Firm) total cost is TC_L = 60*Q_L + 1.5*Q_L². The competitive fringe supply (F = Fringe) is S_F = P_L = 100 + 2Q_F. Determine the quantity that will be produced and sold by the Dominant Firm. The Dominant Firm quantity =

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