01 Jun Question Refer to the figure below: (a) Use the estimated elasticities to calculate the Rothschild index for ea
Question
Refer 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 | |
| Construction | -1.0 | -5.2 | |
| Durable manufacturing | -1.4 | -3.5 | |
| Nondurable manufacturing | -1.3 | -3.4 | |
| Transportation | -1.0 | -1.9 | |
| Communication and utilities | -1.2 | -1.8 | |
| Wholesale trade | -1.5 | -1.6 | |
| Retail trade | -1.2 | -1.8 | |
| Finance | -0.1 | -5.5 | |
| Services | -1.2 | -26.4 |
(b) Based on these calculations, which industry most closely resembles perfect competition?
| Transportation. | |
| Wholesale trade. | |
| Finance. | |
| Retail trade. |
(c) Which industry most closely resembles monopoly?
| Wholesale trade. | |
| Retail trade. | |
| Finance. | |
| 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.
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