At point A, John would be willing to give up three gallons of gasoline for one bag of sugar and remain equally well off. Thus giving up two gallons of gasoline for one bag of sugar as in a move from point A to point B would make John better off (John would end up on a higher indifference curve, U2 J versus U1 J ). Maria would be willing to participate in the trade represented by the move from point A to point B since she is willing at point A to give up one gallon of gasoline in exchange for one bag of sugar. A move from point A to point B results in Maria getting two gallons of gasoline for one bag of sugar and makes Maria better off (she ends up on indifference curve U2 M versus U1 M at point A)

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.