Question 1

Generally, what does a competition agency need to do first before deciding whether a firm is dominant?

Accepted Answer

they need to firstly define the market and then look at market shares

Question 2

In a numerical question, How would you find the dominant firm's residual demand curve and profit function? DFCF model

Accepted Answer

1. residual demand curve 1. QD= Qm - QF 1. Find the demand curve based off the difference between the market demand curve and the fringe 2. Profit function, p\ and QD 1. Set up profit function as normal --\> TR - TC 1. Make sure you are using only costs related to the dominant firm 2. Differentiate, set equal to zero, and rearrange to find p\ 3. Sub p\ into the residual demand curve to find QD

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L3 - Market Power and Dominant Firms Flashcards

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