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Unformatted text preview: Dominant Firm model: Practice Question Suppose the market for tennis shoes has one dominant firm and five fringe firms. The market demand is Q=400-2P. The dominant firm has a constant marginal cost of 20. The fringe firms each have a marginal cost of MC=20+5q. a. Verify that the total supply curve for the five fringe firms is Q f = P- 20 . The total supply curve for the five firms is found by horizontally summing the five marginal cost curves, or in other words, adding up the quantity supplied by each firm for any given price. Rewrite the marginal cost curve as follows: MC = 20 + 5 q = P 5 q = P- 20 q = P 5- 4 Since each firm is identical, the supply curve is five times the supply of one firm for any given price: Q f = 5( P 5- 4) = P- 20 . b. Find the dominant firm’s demand curve....
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This note was uploaded on 02/13/2012 for the course ECON 121 taught by Professor Adam during the Spring '11 term at Bunker Hill.
- Spring '11