Dominant Firm / Competitive Fringe Model

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

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

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

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

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

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

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

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

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

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

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

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

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

Dominant Firm / Competitive Fringe Model