consumers will purchase at each possible price.

We can now
derive the demand curve faced by the dominant firm. The
horizontal difference between the market demand curve DD and
the supply curve of the small firms CMC at different prices
indicates how much the dominant firm would be able to supply at
different prices. The demand curve for the dominant firm is
obtained by horizontally substracting the CMC curve from the DD
curve. Let us see how it is done. Suppose the dominant firm fixes
OP as the price. At this price, the small firms will be able to meet
the entire market demand because opposite OP price, DD = CmC
i.e. the market demand is equal to the supply of all the small firms
taken together. Therefore, the dominant firm will have no sales to
make. Let us now consider a lower price OP 1. At this price, the
small firms will supply P 1A1 output although the market demand at
this price is P1B1.

Figure 2.2

The dominant firm will sell A1B1 at this price. In order to

locate the demand curve for the dominant firm, we relate price
(OP1) and demand for the dominant firm's product at this price.
For this purpose, we take a distance equal to P 1C1 which is the
same thing as A1B1. In other words, we transfer distance A1B1 to
the left so that it gets coordinated with the price OP 1. It is thus
clear that at the price OP 1, the dominant firm will sell P 1C1. C1 is a
point which would lie on the dominant firm's demand curve. In the
same manner, we can consider other prices and link the demand
for the dominant firm's product with these prices. In this manner,
we obtain the dominant firm's demand curve. It is shown as P1d in
the diagram. Having located the demand curve, we can locate the
MR curve of the dominant firm which lies below the AR curve. In
the diagram, MRd shows the MR of the dominant firm. MC d is the
marginal cost of the dominant firm.