Suppose that there are 9 firms in an industry producing an identical product are Cournot competitors. If the industry is in Cournot-Nash equilibrium, allocative inefficiency as a percentage of allocative inefficiency under monopoly is:

Question

Quizplus · Accepted Answer

In a Cournot-Nash equilibrium with n firms, the allocative inefficiency is inversely related to the number of firms. For 9 firms, the inefficiency is 1/9 of that under monopoly, which is approximately 11.11%. Therefore, the inefficiency as a percentage of monopoly inefficiency is 100% - 11.11% = 88.89%, meaning the efficiency is 11.11%, and the inefficiency is 100% - 11.11% = 88.89%. Thus, the inefficiency is 4% of the monopoly inefficiency.

Suppose That There Are 9 Firms in an Industry Producing