The average avoidable cost for a fringe firm is AAC(q) = 20/q +5q. The marginal cost function for a fringe firm is MC = 10q. There are 10 fringe firms. The marginal cost of the dominant firm is 2 and the demand function is Q = 100 − P.What is the supply function of the fringe? What is p0, the minimum price at which the fringe will supply?What is the residual demand function for the dominant firm?What is the profit-maximizing price of the dominant firm?Compare monopoly profits to the profits of the dominant firm. Which market structure is socially preferable, dominant firm or monopoly? Why?

Given, AAC(q) = 20/q +5q MC of fringe firm, MC = 10q [a] Supply functions of a fringe firm =…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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The average avoidable cost for a fringe firm is AAC(q) = 20/q +5q. The marginal cost function for a fringe firm is MC = 10q. There are 10 fringe firms. The marginal cost of the dominant firm is 2 and the demand function is Q = 100 − P.
1. What is the supply function of the fringe? What is p0, the minimum price at which the fringe will supply?
2. What is the residual demand function for the dominant firm?
3. What is the profit-maximizing price of the dominant firm?
4. Compare monopoly profits to the profits of the dominant firm. Which market structure is socially preferable, dominant firm or monopoly? Why?

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