Question

Suppose you compete in a Cournot oligopoly market consisting of six firms. The equilibrium market price and quantity are $5 and 10 units, respectively. The marginal cost for each firm is $3. Based on this information, we know the price elasticity of the market demand is:

Answer 1

-0.417

Step-by-step explanation:

Lerner Index in case of Cournot Oligopoly: LI = [-1 / nEd = P - MC/P]. Ed = Elasticity of demand, n = Number of times

-1 / nEd = P - MC/P

-1/6Ed = 5 - 3 / 5

-1/6Ed = 2/5

Ed = -1/6*5/2

Ed = -5/12

Ed = -0.41666666

Ed = -0.417

So, the price elasticity of the market demand is -0.417