In a competitive market where the elasticity of the market demand curve is -2,the elasticity of the supply curve is 1,and an individual firm faces a residual demand curve with an elasticity of -98.What is the number of firms in this market?
A) 10
B) 20
C) 33
D) Cannot be determined.

Question

Quizplus · Accepted Answer

We can use the formula for the elasticity of market demand curve with respect to the number of firms in the market:
E_DM = -1 / (N * (1/E_DS - 1/E_DD))

Where E_DM is the elasticity of the market demand curve, N is the number of firms, E_DS is the elasticity of the supply curve, and E_DD is the elasticity of the residual demand curve faced by each firm.

Plugging in the given values:
-2 = -1 / (N * (1/1 - 1/-98))

Simplifying and solving for N:
N = 33.33333...

Since N must be a whole number, the answer is C) 33.

In a Competitive Market Where the Elasticity of the Market