The problem describes a price-setting leader firm facing a competitive fringe. SC is the supply of the competitive fringe, D is the total demand, D' is the demand facing the leader firm, MR' is the marginal revenue facing the leader firm, and MC is the marginal cost of the leader firm. The question asks what price and quantity the leader firm will set.
Applied MathematicsMicroeconomicsMarket EquilibriumSupply and DemandMarginal RevenueMarginal CostOptimization
2025/7/1
1. Problem Description
The problem describes a price-setting leader firm facing a competitive fringe. SC is the supply of the competitive fringe, D is the total demand, D' is the demand facing the leader firm, MR' is the marginal revenue facing the leader firm, and MC is the marginal cost of the leader firm. The question asks what price and quantity the leader firm will set.
2. Solution Steps
To determine the price and quantity set by the leader firm, we need to find the point where the marginal revenue (MR') equals the marginal cost (MC).
* Step 1: Identify the intersection of MR' and MC on the graph.
The MR' and MC curves intersect at a quantity of
8
0. This is the optimal quantity the leader firm should produce.
* Step 2: Find the corresponding price on the leader firm's demand curve (D').
At a quantity of 80, we need to trace vertically upwards from the quantity of 80 to find the intersection with the demand curve D'. From the graph, this corresponds to a price of $
2
6.
3. Final Answer
Q = 80, P = $26