The aggregate marginal cost for the following firms is represented by

image2.jpg
where MCf is the horizontal summation of marginal cost for the following firms
and qf is the aggregate quantity produced by the following firms.
The dominant firms marginal cost curve is
image3.jpg
where MCd is the dominant firms marginal cost in dollars and qd is the
quantity produced by the dominant firm.
In order to determine the goods market price and the quantity of the good
produced by the dominant firm and the following firms, you take the following
steps:
Derive the dominant firms demand curve.
Note that the market quantity demanded Q equals:
image4.jpg
Rearrange the following firms aggregate marginal cost curve to get
image5.jpg
Substitute P for MCf in the equation from Step 2.
This substitution is allowed because following firms produce where price equals
marginal cost in order to maximize profit.
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In the Step 1 equation, substitute the market demand equation for Q and the
equation for qf from Step 3.
This step generates the equation for the dominant firms demand curve.
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Rearrange the equation in Step 4 to solve for P as a function of qd.
This form is converted to the total revenue equation in the next step.
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Determine the dominant firms total revenue equation.
Remember, total revenue equals price multiplied by quantity.
image9.jpg
Determine the dominant firms marginal revenue equation.
Take the derivative of total revenue with respect to qd.

image10.jpg
Determine the dominant firms profit-maximizing quantity of output.
Set the dominant firms marginal revenue equal to the dominant firms
marginal cost and solve for qd.