question archive If the profit-maximizing markup factor in a 3-firm Cournot oligopoly is 2, what is the corresponding market elasticity of demand?
If the profit-maximizing markup factor in a 3-firm Cournot oligopoly is 2, what is the corresponding market elasticity of demand?
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If the profit-maximizing markup factor in a 3-firm Cournot oligopoly is 2, what is the corresponding market elasticity of demand?
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In the n-firm oligopoly, the mark up is given as:
P/MC = NE / (1+NE)
From the above equation, it can be stated that P/MC is the markup factor, E is the elasticity, and N is the number of firms. Here, N = 3 and P/MC = 2. Now, substitute the above values in the given equation:
2 = 3E / (1 + 3E)
By solving this we get E = -2/3.
