A Large Firm That Is a Price Leader in an Industry

question 13

Essay

A large firm that is a price leader in an industry characterized also by many small competing firms estimates that the market demand for its product to be as follows:
Q_m = 40,700 - 100P
where Q_m is units per month.
It expects small firms in the industry to supply output according to the following function:
Q_s = 700 + 25P
The large firm's marginal cost function is
MC_L = 100 + .016Q
a. What quantity will the large firm sell?
b. What price will the large firm set?
c. What quantity will the small firms sell?

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Definitions:

Variable Manufacturing Overhead

Costs that vary with the level of production output, such as utilities or commissions, which are indirectly associated with the manufacturing of products.

Total Variable Overhead Variance

Total variable overhead variance is the difference between the actual variable overhead costs incurred and the expected costs based on a standard cost model, indicating inefficiencies in production.

Variable Manuf. Overhead

Costs that vary with the level of production output and are related to the manufacturing process but cannot be directly traced to individual units produced.

Direct Materials

Raw materials that are directly incorporated into a finished product and are easily traceable to it.