Use the following statements to answer this question: I. Under the dominant firm model, the dominant firm effectively acts like a monopolist who is facing the excess market demand that cannot be supplied by the fringe firms.
II) Under the dominant firm model, the fringe firms also act like profit maximizing monopolists.
A) I and II are true
B) I is true and II is false
C) I is false and II is true
D) I and II are false

Question

Quizplus · Accepted Answer

Statement I is true because in the dominant firm model, the dominant firm sets its output level considering the residual demand left after the fringe firms have produced their output. Statement II is false because fringe firms are typically price takers in the dominant firm model, not profit-maximizing monopolists. They adjust their output based on the price set by the dominant firm.

Use the Following Statements to Answer This Question: I