MICROECONOMICS

Question 2 [27' Marks) Suppose you are a consultant working for an economic advisory company which is working on an assignment in the spring water bottling industry. The client has provided the manager with the information needed to complete the assignment. The market demand curve in the spring water bottling industry in Jettingland is given by (30! = 4-00 SF. The spring water bottling industry is dominated by a large firm with a constant marginal cost of R10 per unit. A competitive fringe of 100 firms also exists, each of which has a marginal cost given by MC = 10 + 50q,where q is the output of a typical fringe rm. To compile the report, the manager has asked you to provide information by answering the question below a) Find the equation of the supply curve for the competitive fringe. (3 marks) b) Find the profit-maximizing quantity and price of the dominant firm. At this price, how much does the competitive fringe produce, and what are the fringe and the dominant firm*s market shares? (4 marks) 0) Your manager wants to include a graph in the report showing the interaction between dominant firms, fringe firms and entire market demand. Provide your manager with a wellennotated diagram depicting a_|| the information from above including the profit-maximizing quantities and prices. (8 marks) d) Suppose the South African competition commission is concerned about the amount of dominance in the spring water bottling industry and has decided to break the dominant rm into ve identical rms. Suppose the ve rms act as Cournot quantity setters and consider the supply curve of the competitive fringe. i) Find the Cournot equilibrium output and price of each dominant firm? (8 marks) ii) What are the dominant and the fringe's market shares? (4 marks)