question archive An industry is known to face market price elasticity of demand of -0
An industry is known to face market price elasticity of demand of -0
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An industry is known to face market price elasticity of demand of -0.5. Suppose that this elasticity is approximately constant as the industry moves along its demand curve. The marginal cost in this industry is $50 per unit, and there are four firms in the industry. What would the Lerner index be at the Cournot equilibrium in this industry?
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In a Cournot industry with N firms, the Lerner index is calculated as:
Where is the oligpoly price, is the marginal cost for each firm and is the market price elasticity of demand.
In our question, we have:
Therefore, the Lerner index is:
