The mobile telecommunication network providers in Indonesia is a six-firm Cournot oligopoly industry in Indonesia

Marketing Jan 11, 2021

The mobile telecommunication network providers in Indonesia is a six-firm Cournot oligopoly industry in Indonesia. Suppose you compete in a Cournot oligopoly market consisting of six firms.

a) If the profit-maximizing markup factor in a six-firm Cournot oligopoly is 2, what is the corresponding market elasticity of demand?

b) Assume that the equilibrium market price is $6. Based on this information, what is the marginal cost of each firm in the industry?

Expert Solution

Here, the number of firms (n) is 6 and the profit-maximizing mark-up is 2; that is P-MC/P is 2.

Therefore, market elasticity of demand Ed can be estimated as:

1/lEdl * n = P - MC / MC

1/lEdl * 6 = 2

1/lEdl = 12

Thus, Ed = 1/12 = 0.083

It is given that price is $6; therefore, the marginal cost can be estimated as;

P - MC / P = 2 / n

6 - MC / 6 = 2 / n

By solving this; we get,

MC = 4

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