Question

Suppose the demand function for an industry is given by Qdt = 150 - 6PT Where...

Suppose the demand function for an industry is given by

Qdt = 150 - 6PT

Where Qdt is the quantity demanded that this market is facing, and PT = $12 is the market price. Suppose the elasticity of demand for one of the firms in the market is (-4.66): then calculate the Rothschild Index.

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Answer #1

PT = 12 Put in demand function of market

Qdt = 150-6PT

Qdt = 150-6(12) = 78

Qdt / PT = -6

price elasticity of demand for market= [Qdt / PT]* [P/Q]

price elasticity of demand for market = -6*12/72= -1

Rothschild Index = (price elasticity of demand for market)/ (price elasticity of demand of single firm)

Rothschild Index = -1/-4.66= 0.21

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