Suppose demand for wind turbines is Q = 110-3P, where P is the price. The dominant producer in this industry is “Winnie’s Wind Turbines”. There are also a number of small price-taking firms that can be represented by the supply function S(P)=P-10. The marginal cost of production for the dominant firm is given by mcd=10 and the total cost function is given by 10qd.
What quantity would Winnie’s Wind Turbines supply in the wind turbine market?
What would be the market price for a wind turbine?
What quantity would the fringe supply?
Market demand is Q = 110 – 3P
Fringe supply is Q = P – 10
Residual demand = 110 – 3P – P + 10
= 120 – 4P
Inverse residual demand is P = 30 – 0.25Q
Marginal revenue is MR = 30 – 0.5Q
Use MR = MC
30 – 0.5Q = 10
Q = 20/0.5 = 40 units
P = $20
Fringe firms will supply 20 – 10 = 10 units
Thus,
Winnie’s Wind Turbines would supply 40 units in the wind turbine market
The price would be $20 for a wind turbine
Fringe supply 10 units
Suppose demand for wind turbines is Q = 110-3P, where P is the price. The dominant...
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