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 =

A dominant firm is one which accounts for a significant share of a given market and has a significantly larger market share than its next largest rival. P = 10,000 - 20QT 20QT = 10,000 - P QT = 500 - 0.05P The competitive fringe supply is SF = P = 100 + 2QF P = 100 + 2QF P - 100 = 2QF QF = 0.5P - 50 The demand function for the dominant firm or leader is given by 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 The demand function for the dominant firm or leader is P = 1000 - 20QL/11 MRL = 1000 - 2(20QL/11) MRL = 1000 - 40QL/11 TCL = 50QL + 1.5Q2L MCL = 50 + 3QL The profit-maximizing condition is MRL = MCL 1000 - 40QL/11 = 50 + 3QL 1000 - 50 = 3QL + 40QL/11 950 = (33QL + 40QL)/11 10450 = 73QL QL = 143.15 Thus, the quantity produced by dominant firm is QL = 143 P = 1000 - 20QL/11 P = 1000 - 20(143)/11 P = 1000 - 260 P = 740 The dominant firm price is P = 740 3) QT = 500 - 0.05P QT = 500 - 0.05(740) QT = 500 - 37 QT = 463 The total market demand is QT = 463 QF = 0.5P - 50 QF = 0.5(740) - 50 QF = 370 - 50 QF = 320 OR QF = QT - QL QF = 463 - 143 QF = 320 Therefore, the Fringe Firms’ quantity is QF = 320

Answered: Price is set in a market by a dominant…

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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