Assume that the market demand for organs is Q = 800 ? 3P, where Q = QF + QD and QF is the quantity supplied by fringe firms or Q is the total quantity and QD is the quantity supply by the dominant firms. The dominant firm's total costs are given by the CD = 80QD and the competitive fringe's supply curve is given by the QF =? 200 + 2P.
1. Graph the market demand curve and the fringe firm's supply curve. Label the vertical intercepts of each.
2. Identify the dominant firm's marginal and average costs. Show these costs on the diagram.
3. Evaluate the price at which the fringe firms will supply the entire quantity demanded by the market. Label this price P1.
4. Identify the price at which the fringe firms will choose to drop out of the market (supply no output). Label this price P2.
5. Identify the dominant firm's residual demand curve for prices among the P1 and P2. Add this residual demand curve to the diagram.
6. Find out the dominant firm's profit-maximizing quantity of output.
7. How can identify the price level the dominant firm would set?
8. Identify the profits of the dominant firm.