Alchem (L) is the price leader in the polyglue market. All 10 other manufacturers(follower [F] firms) sell polyglue at the same price as Alchem. Alchem allows theother firms to sell as much as they wish at the established price and supplies theremainder of the demand itself. Total demand for polyglue is given by the followingfunction (QT = QL + QF):P ¼ 20;000 4QTAlchem’s marginal cost function for manufacturing and selling polyglue isMCL ¼ 5;000 þ 5QLThe aggregate marginal cost function for the other manufacturers of polyglue isΣMCF ¼ 2;000 þ 4QFa. To maximize profits, how much polyglue should Alchem produce and what priceshould it charge?b. What is the total market demand for polyglue at the price established by Alchemin Part (a)? How much of total demand do the follower firms supply?
Alchem (L) is the price leader in the polyglue market. All 10 other manufacturers
(follower [F] firms) sell polyglue at the same price as Alchem. Alchem allows the
other firms to sell as much as they wish at the established price and supplies the
remainder of the
function (QT = QL + QF):
P ¼ 20;000 4QT
Alchem’s marginal cost function for manufacturing and selling polyglue is
MCL ¼ 5;000 þ 5QL
The aggregate marginal cost function for the other manufacturers of polyglue is
ΣMCF ¼ 2;000 þ 4QF
a. To maximize profits, how much polyglue should Alchem produce and what price
should it charge?
b. What is the total market demand for polyglue at the price established by Alchem
in Part (a)? How much of total demand do the follower firms supply?
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