A market consists of a large firm who is a price leader and a small firm who follows. Assume that market (inverse) demand function is p=595-y and that the large and small firms’ marginal cost functions are MC1=10+2*y1/3 and MC2=10+2y2. Please answer the following questions:
(1) Derive the supply function of the small firm.
(2) Derive the residual demand function of the large firm.
(3) What’s the equilibrium price?
(4) Calculate the levels of output sold by the large and small firms in equilibrium.