The demand curve facing a dominant firm in the price leadership model is derived by subtracting the
A) amount supplied by the smaller firms from market demand.
B) amount supplied by the smaller firms from market supply.
C) amount demanded by customers from the smaller firms from market supply.
D) dominant firm's marginal cost curve from the industry's supply curve.

Question

Quizplus · Accepted Answer

The demand curve facing a dominant firm in the price leadership model is derived by subtracting the amount supplied by the smaller firms from the total market demand. This gives the residual demand that the dominant firm faces, which it can then serve at its discretion.

The Demand Curve Facing a Dominant Firm in the Price