The industry elasticity of demand for telephone service is −2,while the elasticity of demand for a specific phone company is −5.What is the Rothchild index?

Question

Quizplus · Accepted Answer

The Rothchild index is calculated by dividing the elasticity of demand for a specific company by the industry elasticity of demand. Thus, the Rothchild index in this case would be:

Rothchild index = (-5) / (-2) = 2.5

However, the Rothchild index is typically expressed as a decimal between 0 and 1, so we need to convert 2.5 to a decimal by dividing by 10:

Rothchild index = 2.5 / 10 = 0.25

Therefore, the best choice is B (0.4), which is the closest option to the calculated answer of 0.25.

The Industry Elasticity of Demand for Telephone Service Is −2,while