In the dominant firm model,if the dominant firm's market share is 3/7,its elasticity of demand is 10 and the elasticity of supply of the competitive fringe firms is 4,then the elasticity of market demand must be _____.

Question

Quizplus · Accepted Answer

The elasticity of market demand in the dominant firm model can be calculated using the formula: $E_m = \frac{E_d \times E_s}{E_d + E_s - E_d \times E_s}$, where $E_m$ is the market demand elasticity, $E_d$ is the demand elasticity of the dominant firm, and $E_s$ is the supply elasticity of the competitive fringe. Substituting the given values ($E_d = 10$ and $E_s = 4$) into the formula gives $E_m = \frac{10 \times 4}{10 + 4 - 10 \times 4} = \frac{40}{14 - 40} = \frac{40}{-26} = -\frac{20}{13}$. However, the absolute value is considered for elasticity, making the correct answer $E_m = \frac{20}{13}$, which is not directly one of the options given. The calculation provided does not directly lead to the correct choice based on the options given, indicating a mistake in the explanation. The correct approach involves understanding how the market share and elasticities interact, but without the correct formula or values, the explanation provided is incorrect. The correct calculation should consider how the dominant firm's market share and the elasticities of demand and supply influence the overall market demand elasticity, typically involving the weighted contributions of the dominant firm and the fringe firms to the market demand elasticity.

In the Dominant Firm Model,if the Dominant Firm's Market Share