ECO – Calculate the Rothschild index for each industry

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.