Harper Industries is the dominant firm in a six firm industry with a homogeneous
ID: 1106049 • Letter: H
Question
Harper Industries is the dominant firm in a six firm industry with a homogeneous product, which has a total market demand given by Q = 62 – P. Harper has competition from a fringe of five small firms that produce where their individual marginal costs equal the market price. The fringe firms each have total costs given by TCi = 25 + 8Qi + 2.5Qi2. If Harper’s total costs are given by TCH = 200 + 2QH+ 0.25QH2, what quantity will Harper produce?
16.00
20.00
22.00
24.00
33.00
16.00
20.00
22.00
24.00
33.00
Explanation / Answer
Correct option is 22
Find the supply function of fringe
MC = 8 + 5q
P = 8 + 5q
5q = P - 8
Since there are five firms, market supply of fringe is Q = P - 8
Residual demand for dominant firm is Q = 62 - P - P + 8
Q = 70 - 2P
P = 35 - 0.5Q
MR = 35 - Q
MR = MC
35 - Q = 2 + 0.5Q
33 = 1.5Q
Q* = 22 units
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