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Find the critical elasticity of demand for an ssnip

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5. Suppose demand is p = 80 - q and marginal cost for all firms is constant and equal to 20. Suppose there are two competing firms.

(a) Find the Cournot equilibrium price and quantity.

(b) Find the equilibrium if there is a hypothetical monopolist. How much is price raised?

(c) Show that for linear demand p = a - bq that εii ( po) = p0. a - p0

(d) Find the critical elasticity of demand for an SSNIP equal to 5%. How does this compare to the prevailing (Cournot) elasticity of demand? Determine on the basis of the critical elasticity of demand whether this market is an antitrust market.

(e) Suppose now that marginal cost equals 65. Redo (a), (b), and (d).

Reference no: EM13874537

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