Alchem (L) is the price leader in the polyglue market. All 10
other manufacturers (follower [F] firms) sell polyglue at the same
price as Alchem. Alchem allows the other firms to sell as much as
they wish at the established price and supplies the remainder of
the demand itself. Total demand for polyglue is given by the
follow- ing function (QT = QL + QF):
P = 20,000−4QT
Alchem’s marginal cost function for manufacturing and selling
polyglue is
MCL =5,000+5QL
The aggregate marginal cost function for the other manufacturers of
polyglue is
∑MCF =2,000+4QF
To maximize profits, how much polyglue should Alchem produce and
what price should it charge?
What is the total market demand for polyglue at the price
established by Al- chem in Part (a)? How much of total demand do
the follower firms supply?
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