In a Cournot oligopoly with N firms and identical marginal costs,the relationship between the price elasticity of market demand and that of the firm is: A) E_M = E_F. B) E_M = NE_F. C) E_M = E_F/N. D) No deterministic relationship.

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Quizplus · Accepted Answer

The price elasticity of market demand is the same for all firms in a Cournot oligopoly, while the price elasticity of an individual firm depends on its own quantity produced and market share. In this scenario, all firms have identical marginal costs, so they will produce the same quantity and have an equal market share. Therefore, the price elasticity of each firm will be the same and proportional to the inverse of the number of firms in the market. This gives us the relationship E_M = E_F/N.

In a Cournot Oligopoly with N Firms and Identical Marginal