Suppose Orange Inc. sells MP3 players and initially has monopoly power because there are only a few close substitutes available to consumers. As more types of MP3 players are introduced into the market, the demand facing Orange becomes ________ elastic and the Lerner index achieved by the firm in this market ________.

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As more substitutes become available, the demand facing Orange Inc. becomes more elastic because consumers have more alternatives. This increased elasticity typically leads to a decrease in the firm's ability to mark up prices over marginal cost, which is what the Lerner index measures. Thus, the Lerner index declines.