Problem
Apple's iPod has been the portable MP3-player of choice among many gadget enthusiasts. Suppose that Apple has a constant marginal cost of 4 and that market demand is given by Q = 200 - 2P.
a) If Apple is a monopolist, find its optimal price and output. What are its profits?
b) Now suppose there is a competitive fringe of 12 price-taking firms, each of which has a total cost function TC(q) = 3q2 + 20q with corresponding marginal cost curve MC = 6q +20. Find the supply function of the fringe (Hint: A competitive firm supplies along its marginal cost curve above its shutdown point). c) If Apple operates as the dominant firm facing competition from the fringe in this market, now what is its optimal output? How many units will fringe providers sell? What is the market price, and how much profit does Apple earn? d) Graph your answer to part (c).
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.