The average avoidable cost for a fringe firm is AAC(q) = 20/q + 5q. The marginal cost function for a fringe firm is MC = 10q. There are 10 fringe firms. The marginal cost of the dominant firm is 2 and the demand function is Q = 100 - P.
(a) What is the supply function of the fringe? What is p0?
(b) What is the residual demand function for the dominant firm?
(c) What is the profit-maximizing price of the dominant firm?
(d) Compare monopoly profits to the profits of the dominant firm. Which market structure is socially preferable, dominant firm or monopoly? Why?