Assume the market demand curve is given by QM = 20 – P and the fringe...

Assume the market demand curve is given by QM = 20 – P and the fringe firm supply function is
QFF = -6+P. The dominant firm’s marginal cost is MC = 4 and fixed costs are zero.

1. Using a new graph, explain what happens to residual demand curve if the fringe supply curve becomes perfectly elastic at $6. Further assume the dominant firm MC is upward slopping with an equation of MC = -2 +Q. Same market demand function. What does this new residual demand curve imply about the price that the dominant firm can charge? What is dominant firm Q? What is fringe firm Q?

Expert Solution

Rahul Sunny answered 2 years ago

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