An Example Homogeneous product Cournot industry 3 firms ·MC=$10 Elasticity of market demand=-1/2 Profit-maximizing price? °EF=NEM=3×(-12)=-1.5 P=[EF/(1+EF)×MC P=[-1.5/(1-1.5]×$10 P=3×$10=$30 Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 An Example • Homogeneous product Cournot industry, 3 firms • MC = $10 • Elasticity of market demand = - 1/2 • Profit-maximizing price? • EF = N EM = 3  (-1/2) = -1.5 • P = [EF /(1+ EF )]  MC • P = [-1.5/(1- 1.5]  $10 • P = 3  $10 = $30