Dominant Firm Model: ( 30 points) What are the potential sources of dominance of a firm call it U? Consider the US Ste

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Dominant Firm Model: ( 30 points) What are the
potential sources of dominance of a firm call it U? Consider the US
Steel industry, there is a dominant firm U and a bunch of small
firms: the competitive fringe.
– Demand: P = 100 – Q (industry demand curve, Q= qf+
qu)
– Fringe supply: QSf : P = 25 + 2qf the supply of
the competitive fringe.
– Marginal cost of firm U (US Steel): MCu = 25 + (1/3)
qu
Solution method:
Find residual demand curve: total demand – fringe supply: qu = Q
- qf
Find U‘s profit-maximizing price given residual demand.
Calculate the amount of output produced by the dominant firm and
the competitive fringe.