Compute Lerner Index (of market power) when the market is free-entry equilibrium. Describe mathematically & intuitively, how the overall market is determined by size of the market s & fixed cost f.
inverse market demand= P(Q)=a-(Q/s)
cost function= c(qi)=f+cqi
Equilibrium firm output= q=[s(a-c)]/n+1
Market Price= p=[a+nc]/n+1
Firm profit={[s(a-c)^2]/(n+1)^2} -f
number of firms under free entry= [(a-c)/(f/s)^1/2]-1