The residual demand curve shows:
A)the quantity that the dominant firm sells at each price after accounting for the fringe firms' output.
B)the quantity that fringe firms sell at each price based on the output of the dominant firm.
C)the quantity that the dominant firm supplies at each price irrespective of the market output.
D)the combined quantity that is sold at each price in the market by the dominant and fringe firms.

Question

Quizplus · Accepted Answer

The residual demand curve shows the quantity that the dominant firm sells at each price after accounting for the fringe firms' output. It is obtained by subtracting the output of the fringe firms from the total market demand. This curve reflects the market power of the dominant firm and indicates how its pricing decisions affect the quantity sold by both dominant and fringe firms in the market.

The Residual Demand Curve Shows