# 3 Dominant Firm with a Competitive Fringe Suppose that the market demand for ora

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3 Dominant Firm with a Competitive Fringe

Suppose that the market demand for oranges is Q = 1000 − 2P , where Q = n ∗ Qf + Qd and Q is the total quantity, Qf is the quantity supplied by a single competitive fringe firm and Qd is the quantity supply by the dominant firms. The dominant firm’s marginal cost is given by mcd = 100, QD and the competitive fringe’s supply curve is given by Qf = −120 + P . There are three competitive fringe firms in the market.

3.1 Short Run Fixed Entry/Exit

a. Calculate the dominant firm’s residual demand, and marginal revenue of its residual demand. Plot them on the graph.

b. Calculate the equilibrium quantity and price set by the dominant firm. Also calculate the equilibrium quantity supplied by each competitive fringe firm.

c. Now if we change the marginal cost for the dominant firm to be mcd = 50, redo the part (a) and (b) under this new marginal cost condition.

d. Now if we change the marginal cost for the dominant firm to be mcd = 150, redo the part (a) and (b) under this new marginal cost condition.

3.2 Long Run Free Entry/Exit

In the long run, there is free entry and exit for the competitive fringe firms.

a. Calculate the dominant firm’s residual demand, and marginal revenue of its residual demand. Plot them on the graph.

b. Calculate the equilibrium quantity and price set by the dominant firm. Also calculate the equilibrium quantity supplied by each competitive fringe firm.

c. Now if we change the marginal cost for the dominant firm to be mcd = 50, redo the part (a) and (b) under this new marginal cost condition.

d. Now if we change the marginal cost for the dominant firm to be mcd = 150, redo the part (a) and (b) under this new marginal cost condition.

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