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Consider an industry of four firms with the following market shares: 50%, 30%, 10% and 10%. The product is homogeneous, such that the price in the market is $30. However, the industry just experienced a sudden drop in demand. The new (inverse) demand curve is estimated to be P = 50 – 0.2Q, where Q is the total quantity supplied and sold in the market. Assume that each firm chooses their quantity (qi) to maximize profit according to the rule MR = MCi, where each of the four firms has their own (constant) MCi = ACi over all q. a. What is the share-wise Lerner Index for this industry? b. What will the new Lerner Index be after some time with the new demand curve and market price of 30? What firms survive the new demand curve in the industry and why?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9439294

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