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Questions on the Dominant Firm/Competitive Fringe Model 1. An industry consists of 11 firms. Ten of these firms are small firms that constitute the "competitive fringe" of the market. These small firms all take as given the price established by the single large firm in the industry. These 10 small price takers are then free to supply whatever output they choose. The 11th firm is the large dominant firm in the industry. This large firm sets the price for the industry. Each of the 10 small firms has a total cost curve TC = 30 qi + 1.25qi2 for i running from 1 to 10; the dominant firm produces all the output it wishes with TC = 0.125q2 (i.e. TC = 1/8 q2). Total market demand for the good can be expressed as P = 750 - .75QT, where QT is the total quantity of output in the industry. Fill in the table below for this market equilibrium Quantity Price Profit produced charged Dominant Firm Total of competitive fringe Total of all firms N.A. Marginal Cost of production at equilibrium Marginal Revenue at equilibrium N.A. N.A. 2. In Question 1 above, the dominant firm has a “kinked” residual demand curve. What is the two-part equation of this demand curve? 3. In Question 1, the marginal revenue curve of the dominant firm has two parts. What is the two-part equation of this marginal revenue curve? 4. If the competitive fringe did not exist, the Dominant Firm would be a monopolist facing the entire market demand curve. What would be the equilibrium price and equilibrium quantity traded under these conditions? Calculate the profit of this monopolist and the deadweight loss. 5. What is the deadweight loss for the Dominant Firm/Competitive Fringe model? Compare the price, output, profit and deadweight loss under monopoly and under the dominant firm/competitive fringe model. Does this comparison match your expectations based on the Structure-ConductPerformance paradigm? (a paradigm is a way of thinking, or a system of thought).