A profit-maximising firm faces the following total cost function for any production quantity, q, greater than zero
Question:
A profit-maximising firm faces the following total cost function for any production quantity, q, greater than zero TC = 40 + 10q + 0.1q2 and TC = 0 if q = 0. There are 200 firms in this industry, each with the same total cost function. The market demand for the product the 200 firms make is QD = 15,000 - 250p
a. Find the quantity that each firm will choose to supply as a function of price.
b. What is the equilibrium market price in this industry assuming the firms act as price takers? What quantity will each firm supply in equilibrium?
c. A new firm enters this market with a different total cost function that gives it a constant marginal cost of 14. It acts as the dominant firm in this industry and the 200 pre-existing firms act as a competitive fringe, i.e. the dominant firm sets the price and the competitive firms supply the quantity they want at that price. In the market equilibrium that includes the dominant firm, what is the equilibrium price? How many units are supplied to the market, and, of this total, how much is supplied by the dominant firm and how much by each of the firms in the competitive fringe? How much profit does the dominant firm make?