solution

With the supply curve of the follower firms shown as S0, the dominant firm faces a demand curve PAD and marginal revenue curve PALM. The dominant firm can only affect the price if it sets a price below P. If the dominant firm’s marginal cost curve is MC1, price will be P with both the dominant firm and other firms supplying a total output of Q. If MC2 is the cost curve, the dominant firm supplies the entire market at P and produces Q. Only if the MC curve is lower than MC3 will price and total output differ from P and Q. In most cases, a horizontal supply curve of other firms means the dominant firm will have no effect on price and output.