In a competitive market where the elasticity of the market demand curve is -0.5,there are 100 identical firms,and the elasticity of the supply curve to the other 99 firms is 4.What is the elasticity of the demand curve of the 100th firm?

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Quizplus · Accepted Answer

In a perfectly competitive market, each firm is a price taker and faces a perfectly elastic demand curve. However, in this case, the market demand is slightly inelastic (-0.5). The elasticity of the supply curve for the 99 firms is given as 4, which is relatively elastic. This means that if the 100th firm changes its supply, it will have a negligible effect on the market price. Therefore, the demand curve faced by the 100th firm will be almost perfectly inelastic, with an elasticity of -446 according to the formula:

Elasticity of the individual firm = - (market demand elasticity / (number of firms + supply elasticity of other firms))
= - (-0.5 / (100 + 4))
= -446

In a Competitive Market Where the Elasticity of the Market