Q. Alchemy (L) is the price leader in the poly-glue market. All ten other manufacturers [follower (F) firms] sell poly-glue at the same price as Alchemy. Alchemy allows the other firms to sell as much as they wish at the established price and supplies the remainder of the demand itself. Total demand for poly-glue is given by the following demand function, P = 20,000 - 4QT, where QT = QL + QF. Alchemy's marginal cost function for manufacturing and selling poly-glue is MCL = 5,000 + 5QL. The aggregate marginal cost function for the follower firms is MCF = 2,000 + 4QF.
a. To maximize profits, how much poly-glue should Alchemy produce and what price should it charge?
b. What is the total market demand for poly-glue at the price established by Alchemy? How much of the total demand will the follower firms supply?