7.: Monopoly with a competitive fringePrecious Metals Inc. (PMI) is a near-monopoly supplier of iridium. There is also a competitivefringe of iridium producers. Market demand for iridium is represented by the followingfunction:pD (Q) = 400 – 2QThe fringe producers face marginal extraction costs of MC,(qr) = 30 + 0.5qp while PMI hasmarginal costs of $20/kg.If the competitive fringe is not participating in the market, the marginal revenue of PMI isMR(Q) = 400 – 4QIf the competitive fringe is participating in the market, the marginal revenue of PMI isMR(Q) = 100 – QNote: Prices are measured in dollars/kilogram ($/kg) and quantity is measured in kilograms (kg)Answer the following questions:a. Calculate the residual demand facing PMI after accounting for the quantity suppliedby the competitive fringeAnswer the following questions:a. Calculate the residual demand facing PMI after accountingby the competitive fringethe quantity suppliedb. Plot the demand and residual demand curves below.c. If the competitive fringe is not participating in the market, how many kilograms ofiridium will the monopoly extract?d. Using complete sentences, how does the monopolist force out the competitive fringe?What is the opportunity cost of that decision to force out the fringe? You may use agraph to support your answer.

Total Demand function : P = 400 - 2Q MR1 of PMI without Competition = 400 - 4Q MR 2of PMI with…

7. :Monopoly with a competitive fringe Precious Metals Inc. (PMI) is a near-monopoly supplier of iridium. There is also a competitive fringe of iridium producers. Market demand for iridium is represented by the following function: pP(Q) = 400 – 2Q The fringe producers face marginal extraction costs of MCr(qr) = 30 + 0.5qr while PMI has marginal costs of $20/kg. If the competitive fringe is not participating in the market, the marginal revenue of PMI is MR(Q) = 400 – 4Q If the competitive fringe is participating in the market, the marginal revenue of PMI is MR(Q) = 100 –-Q Note: Prices are measured in dollars/kilogram (S/kg) and quantity is measured in kilograms (kg)

7. :Monopoly with a competitive fringe Precious Metals Inc. (PMI) is a near-monopoly supplier of iridium. There is also a competitive fringe of iridium producers. Market demand for iridium is represented by the following function: pP(Q) = 400 – 2Q The fringe producers face marginal extraction costs of MCr(qr) = 30 + 0.5qr while PMI has marginal costs of $20/kg. If the competitive fringe is not participating in the market, the marginal revenue of PMI is MR(Q) = 400 – 4Q If the competitive fringe is participating in the market, the marginal revenue of PMI is MR(Q) = 100 –-Q Note: Prices are measured in dollars/kilogram (S/kg) and quantity is measured in kilograms (kg)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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