The industry elasticity of demand for good Y is -3, while the elasticity of demand for an individual manufacturer's of good Y is -12.Based on the Rothschild approach to measuring market power, we conclude that

Question

Quizplus · Accepted Answer

The Rothschild approach states that the industry elasticity of demand is equal to the inverse of the sum of the individual firms' elasticities of demand. In this case, the industry elasticity of demand is -3, and the individual manufacturer's elasticity of demand is -12. Using the Rothschild approach, we get (1/-[1/3 + 1/12]) = 1/4. This indicates that there is little monopoly power in this industry. Therefore, the correct answer is choice B.

The Industry Elasticity of Demand for Good Y Is -3