Homework Answers
From the Rothschild index we can find that
0.15 = price elasticity of demand for the entire industry / price elasticity of demand for a single firm
This gives
Price elasticity of demand for the representative firm = -0.7/0.15 = -4.67
When there is an increase in the price by 1%, the quantity demanded of this represented firm is likely to decline by 4.67%. this is because price elasticity of demand is the ratio of percentage change in the quantity demanded to percentage change in the price.
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