Suppose a market with a Cournot structure has five firms and a market price elasticity of demand equal to -2.What is a Cournot firm's Lerner Index?

Question

Quizplus · Accepted Answer

The Lerner Index for a Cournot firm is calculated as (P - MC) / P = 1 / (n * |E|), where n is the number of firms and |E| is the absolute value of the price elasticity of demand. With 5 firms and elasticity of -2, the Lerner Index is 1 / (5 * 2) = 0.1.

Suppose a Market with a Cournot Structure Has Five Firms