Question

if the rothschild index is 1, then the individual firm faces what type of demand curve? multiple choice question. a demand curve that has less sensitivity than the market demand curve. a demand curve that has greater sensitivity than the market demand curve. a demand curve that has the same sensitivity as the market demand curve.

Answer 1

The answer is a: a demand curve that has less sensitivity than the market demand curve.

Here's the explanation:

The Rothschild index measures the sensitivity of an individual firm's demand curve relative to the market demand curve. An index of 1 means the firm's demand curve has the same sensitivity as the market demand curve.

Values less than 1 indicate the firm's demand curve is less sensitive, meaning a given change in price leads to a smaller change in quantity demanded. This is due to the firm having a smaller market share and facing a more inelastic (less sensitive) demand.

So in this case, since the Rothschild index is given as 1, the firm faces a demand curve that has less sensitivity than the market demand curve (option a).

The other options are incorrect because:

b) is the opposite - the question states the index is 1, indicating equal, not greater, sensitivity

c) ignores that the question specifies the index is 1, not higher to indicate equal sensitivity

Hope this explanation helps! Let me know if you have any other questions.