Suppose that the market demand for organs is Q = 800-3P, where Q = QF + QD and Q is the total quantity, QF is the quantity supplied by fringe firms and QD is the quantity supply by the dominant firms. The dominant firm’s total costs are given by CD = 80QD and the competitive fringe's supply curve is given by QF = ?200 + 2P.
a. Graph the market demand curve and the fringe firm’s supply curve. Label the vertical intercepts of each.
b. Find the dominant firm’s marginal and average costs. Show these costs on the diagram.
c. Find the price at which the fringe firms will supply the entire quantity demanded by the market. Label this price P1.
d. Find the price at which the fringe firms will choose to drop out of the market (supply no output). Label this price P2.
e. Find the dominant firm’s residual demand curve for prices between P1 and P2. Add this residual demand curve to the diagram.
f. Find the dominant firm’s profit-maximizing quantity of output.
g. Find the price level the dominant firm would set.
h. Find the profits of the dominant firm.