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Dominant Firm / Competitive Fringe Model

Dominant Firm / Competitive Fringe Model. $. MC f. AC f. S f. MC DF. 1. Draw D M , MC f , AC f , S f , MC DF , AC DF 2. Find P @ MC f = AC f 3. Kink @ P = D M 4. P 0 @ S f = D M 5. Draw MR r 6. MC DF = MR r q DF , P = q DF @ D r

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Dominant Firm / Competitive Fringe Model

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  1. Dominant Firm / Competitive Fringe Model $ MCf ACf Sf MCDF 1. Draw DM, MCf, ACf, Sf, MCDF, ACDF 2. Find P @ MCf = ACf 3. Kink @ P = DM 4. P0 @ Sf = DM 5. Draw MRr 6. MCDF = MRr qDF, P = qDF @ Dr 7. P = MCf qf, P = Sf Qf 8. P = DM Q P0 ACDF Dr Dr P P gap @ kink MRr DM MRM steeper after gap (DM steeper than Dr) MRM Q Qf qDF QM qf

  2. Step 1: Start GraphDraw DM, MCf, ACf, Sf, MCDF, ACDF $ MCf ACf MCDF ACDF Sf DM Q

  3. Step 2: Shutdown priceshutdown P @ MCf = ACf $ MCf ACf MCDF ACDF Sf P DM Q

  4. Steps 3&4: Find Residual Demand P’s where fringe supplies all or none $ MCf ACf MCDF ACDF Sf P0 Dr P DM Q

  5. Step 5: Residual MR(slopes) Dr < MRr < MRM $ MCf ACf MCDF ACDF Sf P0 Dr P MRr DM MRM Q

  6. Step 6: DF output, priceqDF @ MCDF=MRr; price from Dr $ MCf ACf MCDF ACDF Sf P0 Dr P P MRr DM MRM Q qDF

  7. Step 7: fringe q, Qqf @ Price = MCf; Qf @ Price = Sf $ MCf ACf MCDF ACDF Sf P0 Dr P P MRr DM MRM Q Qf qf qDF

  8. Step 8: Total Q for MarketPrice @ Market D yields Market Q $ MCf ACf MCDF ACDF Sf P0 Dr P P MRr DM MRM Q Qf qf qDF QM

  9. Dominant Firm / Competitive Fringe Model $ MCf ACf Sf MCDF 1. Draw DM, MCf, ACf, Sf, MCDF, ACDF 2. Find P @ MCf = ACf 3. Kink @ P = DM 4. P0 @ Sf = DM 5. Draw MRr 6. MCDF = MRr qDF, P = qDF @ Dr 7. P = MCf qf, P = Sf Qf 8. P = DM Q P0 ACDF Dr Dr P P gap @ kink MRr DM MRM steeper after gap (DM steeper than Dr) MRM Q Qf qDF QM qf

  10. Comparison vs. Monopoly $ MCDF ACDF PM Dr P MRr DM MRM Q QM qDF QM

  11. Dominant Firm as Natural Monopoly $ MCf ACf MCDF Sf ACDF P0 Dr P P MRr DM MRM Q qDF(=QM )

  12. COSTLESS ENTRY $ MCf ACf MCDF ACDF Dr = MRr Sf P DM MRM Q

  13. COSTLESS ENTRY $ MCf ACf MCDF ACDF Dr = MRr Sf P DM MRM Q QM qf qDF

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