Imagine that Aalborg Portland is the dominant firm in the high quality cement market where also 10 other firms are active. Through its dominant position Aalborg Portland can act as a price leader while the other 10 firms have to act as price followers. The firms face a linear market demand curve of Р%— 500 — Qм where P is the price per ton of cement (in dollars) and QM is the total output in tons of cement for the market (in thousands). Thus, QM = QL + Qr, where Qı denotes the output provided by Aalborg Portland and QF denotes the aggregated output provided by the 10 followers. Further assume that no firm has fixed costs, Aalborg Portland's marginal cost function is MCL = 2QL, and MCF = 100 + 10QF, for each of the following firms.
Imagine that Aalborg Portland is the dominant firm in the high quality cement market where also 10 other firms are active. Through its dominant position Aalborg Portland can act as a price leader while the other 10 firms have to act as price followers. The firms face a linear market demand curve of Р%— 500 — Qм where P is the price per ton of cement (in dollars) and QM is the total output in tons of cement for the market (in thousands). Thus, QM = QL + Qr, where Qı denotes the output provided by Aalborg Portland and QF denotes the aggregated output provided by the 10 followers. Further assume that no firm has fixed costs, Aalborg Portland's marginal cost function is MCL = 2QL, and MCF = 100 + 10QF, for each of the following firms.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
(a) Determine the
(b) What is the inverse demand curve faced by Aalborg Portland?
(c) Calculate the output level QL provided by Aalborg Portland to the market.
(d) In similar fashion, calculate the
(e) Given your answers in (c) and (d) what will the market price P for high-quality cement be?
Transcribed Image Text:Imagine that Aalborg Portland is the dominant firm in the high quality cement market where
also 10 other firms are active. Through its dominant position Aalborg Portland can act as a price
leader while the other 10 firms have to act as price followers. The firms face a linear market demand
curve of
Р%— 500 — Qм
where P is the price per ton of cement (in dollars) and QM is the total output in tons of cement
for the market (in thousands). Thus, QM = QL + Qr, where Qı denotes the output provided by
Aalborg Portland and QF denotes the aggregated output provided by the 10 followers. Further
assume that no firm has fixed costs, Aalborg Portland's marginal cost function is
MCL = 2QL,
and
MCF = 100 + 10QF,
for each of the following firms.
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