The figure given below represents the total output and price produced in an oligopoly market characterized by a dominant firm and a fringe.SF represents the supply curve of the fringe, D is the market demand curve, DRES represents the residual demand curve of the dominant firm, MRRES represents the residual marginal revenue curve of the dominant firm, and MCD represents the marginal cost of the dominant firm.

-Refer to Figure .Assume that in the long run new firms enter the market lowering the total cost incurred by the fringe firms below the same incurred by the dominant firm.Which of the following situations will arise?
A)The fringe supply will rotate leftward and downward reducing its profit.
B)The dominant firms market share and profit will both increase.
C)The dominant firm will be totally displaced by the fringe.
D)The fringe's market power will decrease.

Question

The figure given below represents the total output and price produced in an oligopoly market characterized by a dominant firm and a fringe.SF represents the supply curve of the fringe, D is the market demand curve, DRES represents the residual demand curve of the dominant firm, MRRES represents the residual marginal revenue curve of the dominant firm, and MCD represents the marginal cost of the dominant firm.

-Refer to Figure .Assume that in the long run new firms enter the market lowering the total cost incurred by the fringe firms below the same incurred by the dominant firm.Which of the following situations will arise?

-Refer to Figure .Assume that in the long run new firms enter the market lowering the total cost incurred by the fringe firms below the same incurred by the dominant firm.Which of the following situations will arise?
A)The fringe supply will rotate leftward and downward reducing its profit. 
B)The dominant firms market share and profit will both increase. 
C)The dominant firm will be totally displaced by the fringe. 
D)The fringe's market power will decrease.

Quizplus · Accepted Answer

In the long run, if new firms enter the market and lower the total cost for fringe firms below that of the dominant firm, the fringe firms will become more competitive. This could lead to the dominant firm being displaced as the fringe firms can offer lower prices or better value, capturing more market share.

The Figure Given Below Represents the Total Output and Price