1. Dominant Firm / Competitive Fringe Model$
1. Draw DM, MCf, ACf, Sf, MCDF, ACDF
2. Find MCf = ACf
3. P = DM
4. Sf = DM
5. Draw MRr
6. MCDF = MRr qDF,
P = Dr
7. P = MCf qf, P = Sf Qf
8. P = DM Q
MCf
ACf Sf
MCDF P0
ACDF Dr Dr P P
kink
MRr DM
MRM steeper after gap
(DM steeper than Dr)
MRM Q Qf
qDF QM qf

2. Step 1: Start Graph Draw DM, MCf, ACf, Sf, MCDF, ACDF$
MCf
ACf
MCDF
ACDF Sf DM Q

3. Step 2: Shutdown price shutdown P @ MCf = ACf$
MCf
ACf
MCDF
ACDF Sf P DM Q

4. Steps 3&4: Find Residual Demand P’s where fringe supplies all or none$
MCf
ACf
MCDF
ACDF Sf P0 Dr P DM Q

5. Step 5: Residual MR (slopes) Dr < MRr < MRM$
MCf
ACf
MCDF
ACDF Sf P0 Dr P
MRr DM
MRM Q

6. Step 6: DF output, price qDF @ MCDF=MRr; price from Dr$
MCf
ACf
MCDF
ACDF Sf P0 Dr P P
MRr DM
MRM Q
qDF

7. Step 7: fringe q, Q qf @ Price = MCf; Qf @ Price = Sf$
MCf
ACf
MCDF
ACDF Sf P0 Dr P P
MRr DM
MRM Q Qf qf
qDF

8. Step 8: Total Q for Market Price @ Market D yields Market Q$
MCf
ACf
MCDF
ACDF Sf P0 Dr P P
MRr DM
MRM Q Qf qf
qDF QM

9. Dominant Firm / Competitive Fringe Model$
1. Draw DM, MCf, ACf, Sf, MCDF, ACDF
2. Find MCf = ACf
3. P = DM
4. Sf = DM
5. Draw MRr
6. MCDF = MRr qDF,
P = Dr
7. P = MCf qf, P = Sf Qf
8. P = DM Q
MCf
ACf Sf
MCDF P0
ACDF Dr Dr P P
kink
MRr DM
MRM steeper after gap
(DM steeper than Dr)
MRM Q Qf
qDF QM qf

10. Comparison vs. Monopoly$
MCDF
ACDF PM Dr P
MRr DM
MRM Q QM
qDF QM

11. Dominant Firm as Natural Monopoly$
MCf
ACf
MCDF Sf
ACDF P0 Dr P P
MRr DM
MRM Q
qDF (= QM )

12. COSTLESS ENTRY $
MCf
ACf
MCDF
ACDF
Dr =
MRr Sf P DM
MRM Q

13. COSTLESS ENTRY $
MCf
ACf
MCDF
ACDF
Dr =
MRr Sf P DM
MRM Q QM qf
qDF