Dominant Firm / Competitive Fringe

Dominant Firm / Competitive Fringe

$ Dominant Firm / Competitive Fringe Model MC ACf f Sf P0 ACDF Dr P P MCDF MR r MRM qf Q f qDF QM 1. Draw DM, MCf, ACf, Sf, MCDF, ACDF 2. Find P @ MCf = ACf

3. Kink @ P = DM r D 4. P0 @ Sf = DM 5. Draw MRr gap @ kink DM MRM steeper after gap (DM steeper than Dr) 6. MCDF = MRr qDF, P = qDF @ Dr f f, P = Sf f 7. P = MC q Q Q 8. P = DM Q Step 1: Start Graph M f f f

DF DF Draw D , MC , AC , S , MC , AC $ MCf ACf MCDF Sf ACDF DM Q Step 2: Shutdown price f f shutdown P @ MC = AC $ MCf ACf MCDF Sf ACDF P DM

Q Steps 3&4: Find Residual Demand Ps where fringe supplies all or none $ MCf ACf P0 Dr MCDF Sf ACDF P DM Q Step 5: Residual MR r r M (slopes) D < MR < MR $ MCf ACf

P0 P MCDF Sf Dr ACDF MR r DM MRM Q Step 6: DF output, price DF DF r r q @ MC =MR ; price from D $ MCf ACf P0 P

P MCDF Sf Dr ACDF MR r DM MRM qDF Q Step 7: fringe q, Q f f f f q @ Price = MC ; Q @ Price = S $ MCf ACf P0 P P

MCDF Sf Dr ACDF MR r DM MRM qf qDF Q f Q Step 8: Total Q for Market Price @ Market D yields Market Q $ MCf ACf P0 P P

MCDF Sf Dr ACDF MR r DM MRM qf qDF Q f QM Q $ Dominant Firm / Competitive Fringe Model MC ACf f Sf P0

ACDF Dr P P MCDF MR r MRM qf Q f qDF QM 1. Draw DM, MCf, ACf, Sf, MCDF, ACDF 2. Find P @ MCf = ACf 3. Kink @ P = DM r D 4. P0 @ Sf = DM 5. Draw MRr gap @ kink DM MRM steeper after gap

(DM steeper than Dr) 6. MCDF = MRr qDF, P = qDF @ Dr f f, P = Sf f 7. P = MC q Q Q 8. P = DM Q Comparison vs. Monopoly $ PM P MCDF ACDF Dr MR r DM

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

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

Dr P = MCDF ACDF MRr Sf DM MRM qf qDF Q M Q

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