4. Suppose the market demand for a homogeneous product is given by Q = a-BP,where a and 3 are positive constants. The product is supplied by a dominantfirm with a constant marginal cost c> 0 and n competitive fringe firms, eachof which has a cost function c;(qi) = q//(2ki) for i 1, ..., n, where ki > 0 is aparameter. Suppose the dominant firm moves first to maximize its profits bysetting a price P, followed by competitive fringe firms setting their quantitiessimultaneously to maximize their profits, respectively, taking the price as given.=(a) Compute the equilibrium price and quantity level for each firm.(b) How does the presence of competitive fringe firms affect the equilibriumprice, as compared to the monopoly price by the dominant firm?

We have to find best response functions of competitive cringe firms and then find best response of…

Suppose the market demand for a homogeneous product is given by Q = a-Bl where a and 3 are positive constants. The product is supplied by a dominar firm with a constant marginal cost c> 0 and n competitive fringe firms, eac of which has a cost function ci(qi) = q?/(2k₁) for i = 1, ..., n, where kį > 0 is parameter. Suppose the dominant firm moves first to maximize its profits b setting a price P, followed by competitive fringe firms setting their quantiti simultaneously to maximize their profits, respectively, taking the price as giver (a) Compute the equilibrium price and quantity level for each firm. (b) How does the presence of competitive fringe firms affect the equilibriu price, as compared to the monopoly price by the dominant firm?

Suppose the market demand for a homogeneous product is given by Q = a-Bl where a and 3 are positive constants. The product is supplied by a dominar firm with a constant marginal cost c> 0 and n competitive fringe firms, eac of which has a cost function ci(qi) = q?/(2k₁) for i = 1, ..., n, where kį > 0 is parameter. Suppose the dominant firm moves first to maximize its profits b setting a price P, followed by competitive fringe firms setting their quantiti simultaneously to maximize their profits, respectively, taking the price as giver (a) Compute the equilibrium price and quantity level for each firm. (b) How does the presence of competitive fringe firms affect the equilibriu price, as compared to the monopoly price by the dominant firm?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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**Practice**
Suppose that there are two types of firms in a perfectly competitive market. Firms of type A have costs given by CA(q) = 30q2 + 10q. Firms of type B have costs given by CB(q) = 50q2 + 10. ( dCA dq = 60q + 10 and dCB dq = 100q). There are 60 firms of type A and 100 firms of type B. Derive the individual firm supply functions for each type of firm and What is the range of prices in which some firms produce but others do not? Are there prices at which no firms produce Why?