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

Question

Quizplus · Accepted Answer

According to the Rothschild approach, market power can be measured by comparing the elasticity of demand in the industry to the elasticity of demand for an individual firm within that industry. If the firm's elasticity of demand is much more elastic than the industry's elasticity, then the firm has little market power. In this case, the industry elasticity of demand is -3 while the elasticity of demand for an individual manufacturer is -12. The elasticity for the individual manufacturer is more elastic than the industry, which suggests that the firm has little market power. Therefore, choice B is correct.

The Industry Elasticity of Demand for Good Y Is −3,while