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Calculating market share of the given firms

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The domestic sewing machine manufacturing industry is highly concentrated with only three active firms. Annual output and the marginal cost of production for "free arm" models produced by each company are as follows:

Marginal Cost
Annual Output (million) Frantic Frasier (F) Neurotic Niles (N) Delightful Daphne (D)
1 $1,000 $1,200 $1,500
2 900 1,000 1,200
3 800 800 900
4 700 600 600
5 750 750 700
6 850 900 750
7 950 1,000 800

Competition from low-priced imports has been effectively limited by import tariffs (taxes). Given this import protection, domestic firms are able to sell as much output as they wish at the current wholesale market price of $750. However, industry prices haven't risen above $750 because this price triggers a flood of foreign competition.

A. Calculate industry output and the market share of each firm based on the assumptions that prices are stable, and therefore that P = MR = $750, and that MC > AVC.

B. Calculate industry output and the market share of each firm if removal of import restrictions reduces prices such that P = MR = $600. Again assume that MC > AVC.

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Solution describes the steps to determine market share of given firms.

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A. Calculate industry output and the market share of each firm based on the assumptions that prices are stable, and therefore that P = MR = $750, and that MC > AVC.

Each firm will increase its output level as long as its marginal cost is lower than MR ($750) or Marginal Cost is just equal to MR to maximize its profits.

Firm F ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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