Question 3.

Suppose the market for watches has one dominant firm and 22 fringe firms. The market

demand is Q=320-2P. The dominant firm has a constant marginal cost of 55 and no other

cost. The fringe firms each have a marginal cost of MCi = 55 + 10qi and no other cost. Hint:

this question is an example of price leadership by a dominant firm.

a) What is the total supply curve for the 22 fringe firms? [2]

b) What is the dominant firm's demand curve. [2]

c) What is the profit maximizing quantity produced and price changed by the

dominant firm? [4]

d) What is the profit of the dominant firm? [1]

e) What is the quantity produced and price charged by the 22 fringe firms? [3]