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Dominant Firm / Competitive Fringe Model
$ 1. Draw DM, MCf, ACf, Sf, MCDF, ACDF 2. Find MCf = ACf 3. P = DM 4. Sf = DM 5. Draw MRr 6. MCDF = MRr qDF, P = Dr 7. P = MCf qf, P = Sf Qf 8. P = DM Q MCf ACf Sf MCDF P0 ACDF Dr Dr P P kink MRr DM MRM steeper after gap (DM steeper than Dr) MRM Q Qf qDF QM qf
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Step 1: Start Graph Draw DM, MCf, ACf, Sf, MCDF, ACDF
$ MCf ACf MCDF ACDF Sf DM Q
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Step 2: Shutdown price shutdown P @ MCf = ACf
$ MCf ACf MCDF ACDF Sf P DM Q
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Steps 3&4: Find Residual Demand P’s where fringe supplies all or none
$ MCf ACf MCDF ACDF Sf P0 Dr P DM Q
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Step 5: Residual MR (slopes) Dr < MRr < MRM
$ MCf ACf MCDF ACDF Sf P0 Dr P MRr DM MRM Q
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Step 6: DF output, price qDF @ MCDF=MRr; price from Dr
$ MCf ACf MCDF ACDF Sf P0 Dr P P MRr DM MRM Q qDF
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Step 7: fringe q, Q qf @ Price = MCf; Qf @ Price = Sf
$ MCf ACf MCDF ACDF Sf P0 Dr P P MRr DM MRM Q Qf qf qDF
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Step 8: Total Q for Market Price @ Market D yields Market Q
$ MCf ACf MCDF ACDF Sf P0 Dr P P MRr DM MRM Q Qf qf qDF QM
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Dominant Firm / Competitive Fringe Model
$ 1. Draw DM, MCf, ACf, Sf, MCDF, ACDF 2. Find MCf = ACf 3. P = DM 4. Sf = DM 5. Draw MRr 6. MCDF = MRr qDF, P = Dr 7. P = MCf qf, P = Sf Qf 8. P = DM Q MCf ACf Sf MCDF P0 ACDF Dr Dr P P kink MRr DM MRM steeper after gap (DM steeper than Dr) MRM Q Qf qDF QM qf
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Comparison vs. Monopoly
$ MCDF ACDF PM Dr P MRr DM MRM Q QM qDF QM
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Dominant Firm as Natural Monopoly
$ MCf ACf MCDF Sf ACDF P0 Dr P P MRr DM MRM Q qDF (= QM )
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COSTLESS ENTRY $ MCf ACf MCDF ACDF Dr = MRr Sf P DM MRM Q
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COSTLESS ENTRY $ MCf ACf MCDF ACDF Dr = MRr Sf P DM MRM Q QM qf qDF
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