Question: Question 5

Firm (a) is the price leader in a market. 10 other manufacturers follow firms (x) sell at the same price as firm (a)

Firm (a) allows other firms to sell as much as they wish at the established price and supplies the remainder of the demand itself. Total demand is given by:

Q_T = Q_L + Q_F

P = 20,000 – 4Q_T

Firm (a) marginal cost function for manufacturing and selling: MC_L = 5,000 + 5Q_L

Aggregate marginal cost function for other manufacturers:

∑MC_F = 2,000 + 4Q_F

To maximize profits how much should firm (a) produce and what price should be charged?

What is the total market demand at the price established and how much demand do the follower firms (x) supply?