Market demand: Q = D(p) = 200 p

Supply for price-taking competitive fringe: Q = S(p) = p 40

Marginal cost for dominant firm: MC = 40

Assume no entry

a. Suppose first that the dominant firm is a monopolist. How much would it produce?

b. Now suppose that there is a competitive fringe that produces using a supply curve of Q = S(p) = p 40. How much will the dominant firm produce in this market?

c. How much will the competitive fringe produce in this equilibrium? What is the total quantity supplied?

d. Compare consumer surplus and profits under monopoly vs. with competitive fringe.

e. The presence of the competitive fringe reduces the profits the dominant firm can earn. Suppose the dominant firm would like to try to force the competitive fringe out of business. How might the dominant firm try to this?