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Part III: Market Structures and the Decision-Making Environment
Figure 11-5: Price leadership.
The aggregate marginal cost for the following firms is represented by
where ΣMCf is the horizontal summation of marginal cost for the following firms and qf is the aggregate quantity produced by the following firms. The dominant firm’s marginal cost curve is
where MCd is the dominant firm’s marginal cost in dollars and qd is the quantity produced by the dominant firm. In order to determine the good’s market price and the quantity of the good produced by the dominant firm and the following firms, you take the following steps:
1. Derive the dominant firm’s demand curve.
Note that the market quantity demanded Q equals:
2. Rearrange the following firms’ aggregate marginal cost curve to get
