ECO - Calculate the Rothschild index for each industry
KnowledgeCatsRefer to the figure below:
(a) Use the estimated elasticities to calculate the Rothschild index for each industry.
Instruction: Round your answers to 3 decimal places.
Industry | Own Price Elasticity of Market Demand | Own Price Elasticity of Demand for Representative Firm's Product | Rothschild index |
Agriculture | -1.8 | -96.2 | [removed] |
Construction | -1.0 | -5.2 | [removed] |
Durable manufacturing | -1.4 | -3.5 | [removed] |
Nondurable manufacturing | -1.3 | -3.4 | [removed] |
Transportation | -1.0 | -1.9 | [removed] |
Communication and utilities | -1.2 | -1.8 | [removed] |
Wholesale trade | -1.5 | -1.6 | [removed] |
Retail trade | -1.2 | -1.8 | [removed] |
Finance | -0.1 | -5.5 | [removed] |
Services | -1.2 | -26.4 | [removed] |
(b) Based on these calculations, which industry most closely resembles perfect competition?
[removed] | Transportation. |
[removed] | Wholesale trade. |
[removed] | Finance. |
[removed] | Retail trade. |
(c) Which industry most closely resembles monopoly?
[removed] | Wholesale trade. |
[removed] | Retail trade. |
[removed] | Finance. |
[removed] | Transportation. |
Note:TheRothschild index is given by,
R = ET/EF
where ET is the elasticity of demand for the total market and EF is the elasticity of demand for the individual firm’s product.
For perfect competitionRothschild index is 0 and 1 for monopoly so its value lies in between 0 to 1.
12 years ago
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