Consider a dominant firm model in which the elasticity of market demand is 1,the dominant firm's market share is 0.5,and the elasticity of supply of the competitive fringe firms is 4.What would be the dominant firm's elasticity of demand?
A)2
B)4
C)6
D)8

Question

Quizplus · Accepted Answer

The dominant firm's elasticity of demand is related to its market share and the elasticity of supply of the competitive fringe firms as follows:
ED = (1/(1-s))*(Es)
where ED is the dominant firm's elasticity of demand, s is the dominant firm's market share, and Es is the elasticity of supply of the competitive fringe firms. Plugging in the given values, we get:
ED = (1/(1-0.5))*(4) = 2/(0.5) = 4
Therefore, the dominant firm's elasticity of demand is 4.

Consider a Dominant Firm Model in Which the Elasticity of Market