If the profit-maximizing markup factor in a 3-firm Cournot oligopoly is -2, what is the corresponding market elasticity of demand?
A)-1/2.
B)-2/3.
C)-1.0.
D)-2.0.

Question

Quizplus · Accepted Answer

The markup factor is given by (1/market elasticity of demand) - 1. 
So, putting the given value of markup factor as -2: 
-2 = (1/Ed) - 1 
-1 = 1/Ed 
Ed = -1/1 = -1 
However, elasticity is generally given as a positive value, so taking the absolute value of -1, we get: 
|Ed| = 1 
Therefore, the corresponding market elasticity of demand is 1, which means the answer is option B) -2/3.

If the Profit-Maximizing Markup Factor in a 3-Firm Cournot Oligopoly