Question

(A) If the market price elasticity of demand for automobiles is -2 and the price elasticity of demand for Ford automobiles is -5, the Rothschild index is equal to

a) 10

b) 5

c) 2/5

d) 5/2

(B) Which of the following would be considered a vertical merger? A merger of

a) Dell and Ford

b) Intel and Dell

c) Ford and Honda

d) Honda and Nike

(C) For a monopoly, which of the following is true?

a) The HHI index is 10,000

b) The HHI index is zero

c) The Lerner index is zero

d) The Rothschild index is zero

Answer 1

(A)

Rothschild index is given by ,

R = E_t / Ep [ E_t = Elasticity of demand for the total market and E_p = elasticity of demand for the product of an individual firm ]

Here, R = -2 / -5 = 2/5

Answer- option C

(B) A vertical merger is basically a merger between a manufacturer and a supplier i.e. a merger between two companies that produce different products for one specific finished products.

Here, Intel and Dell can be considered as vertical merger. Because, Intel builds processors and Dell manufactures laptop. They can merge vertically because the processors produced by Intel is used in Dell's Laptop.

Answer- option B