Suppose the market for ice-cream has one dominant firm and five small firms. The aggregate market demand for ice-cream is given by Q = 200 − P . Consider that the dominant firm is acting like a monopolist and all five small fringe firms are price takers. Dominant firm’s marginal cost (MC) of producing ice-cream is given as 10 and each small fringe firm has marginal cost M C = 10 + 2.5q where q =quantity of ice-cream. Dominant firm faces the residual demand which is the aggregate demand less of quantity supplied by all smaller fringe firms together. (a) Find the profit-maximising quantity produced and price charged by the dominant firm, and the quantity produced by each of the small fringe firms. (b) Find producer surplus of the dominant firm. (c) Suppose there are 10 small firms instead of 5. How does this change your results?
Suppose the market for ice-cream has one dominant firm and five small firms. The aggregate market demand for ice-cream is given by Q = 200 − P . Consider that the dominant firm is acting like a monopolist and all five small fringe firms are price takers. Dominant firm’s marginal cost (MC) of producing ice-cream is given as 10 and each small fringe firm has marginal cost M C = 10 + 2.5q where q =quantity of ice-cream. Dominant firm faces the residual demand which is the aggregate demand less of quantity supplied by all smaller fringe firms together. (a) Find the profit-maximising quantity produced and price charged by the dominant firm, and the quantity produced by each of the small fringe firms. (b) Find producer surplus of the dominant firm. (c) Suppose there are 10 small firms instead of 5. How does this change your results?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Suppose the market for ice-cream has one dominant firm and five small firms. The aggregate market demand for ice-cream is given by Q = 200 − P . Consider that the dominant firm is acting like a monopolist and all five small fringe firms are price takers. Dominant firm’s marginal cost (MC) of producing ice-cream is given as 10 and each small fringe firm has marginal cost M C = 10 + 2.5q where q =quantity of ice-cream. Dominant firm faces the residual demand which is the aggregate demand less of quantity supplied by all smaller fringe firms together.
(a) Find the profit-maximising quantity produced and price charged by the dominant firm, and the quantity
produced by each of the small fringe firms.
(b) Find producer surplus of the dominant firm.
(c) Suppose there are 10 small firms instead of 5. How does this change your results?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education