Question
An industry consists of one dominant firm (designated) and 12 small firms (designated s). All firms in the industry have identical products. The total cost
An industry consists of one dominant firm (designated) and 12 small firms (designated s). All firms in the industry have identical products. The total cost function of the dominant firm is: 2.25 50. 2 TCd = qd + The market demand is: Q = 250 P. The dominant firm estimates correctly that each of the small firms has the total cost function of the form: 2 10 ( 1,2,...,12) 2 TCs = qs + qs s = . The dominant firm decides to operate as a price leader, sets price and expects that small firms will adopt the price that it sets. The dominant firm sets the price so as to maximize its own profits.
a. What price is set?
b. How much does the dominant firm produce?
c. How much is the dominant firm's profits?
d. How much does each small firm produce?
e. How much is each small firm's profit? f. Show your results in a diagram
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started