5. Suppose that the supply of the competitive fringe is perfectly elastic at $p = p^f$. Suppose that
there is a dominant firm with marginal cost per unit of $c^D$ with a capacity constraint of $\tilde{m}$, where
$p^f > c^D$. Let the demand curve be $P = 100 – Q$.
(a) Suppose that the constraint is not binding. For what values of $c^D$ will the dominant firm be
an unconstrained monopolist?
(b) Suppose that the dominant firm's unit costs are greater than the maximum value found in (a),
but still less than $p^f$, and capacity is not constrained. What is the profit-maximizing price of
the dominant firm?
(c) Suppose that $p^f = 60$ and $c^D = 0$. If the dominant firm is not capacity constrained, what is
its optimal price?
(d) Suppose that $\tilde{m} = 30$, $p^f = 60$, and $c^D = 0$. Will the firm be a price maker? Will it earn
monopoly profits? How much is a unit of its capacity worth? What are its Ricardian rents?
(e) Does the absolute cost advantage create a barrier to entry in (c)? In (d)?
