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Suppose you had a Bresnahan type of econometric study of the mid-range hotel (accommodation) industry, and this results in the following estimated demand and cost equations; Demand: P = 95.67 -1.64Q + 0.75Y1 + 0.42Y1Q + 0.65 Y2 where P is price, Q is quantity, Y1 is the price of a close substitute and Y2 is consumers' income. Cost equation: P 2.67 +0.21Q-0.36Y1Q+0.16W where P is price, Q is quantity, Y1 is the price of a close substitute and W is the wage rate in the industry. Using this information, calculate the Lerner index for this industry. Does market power exist in the industry? Justify your answer

Suppose you had a Bresnahan type of econometric study of the mid-range hotel (accommodation) industry, and this results in the following estimated demand and cost equations; Demand: P = 95.67 -1.64Q + 0.75Y1 + 0.42Y1Q + 0.65 Y2 where P is price, Q is quantity, Y1 is the price of a close substitute and Y2 is consumers' income. Cost equation: P 2.67 +0.21Q-0.36Y1Q+0.16W where P is price, Q is quantity, Y1 is the price of a close substitute and W is the wage rate in the industry. Using this information, calculate the Lerner index for this industry. Does market power exist in the industry? Justify your answer

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose you had a Bresnahan type of econometric study of the mid-range hotel (accommodation) industry, and this results in the following estimated demand and cost equations; Demand: P = 95.67 - 1.64Q + 0.75Y1 + 0.42Y1Q + 0.65 Y2 where P is price, Q is quantity, Y1 is the price of a close substitute and Y2 is consumers' income. Cost equation: P = 2.67 +0.21Q-0.36Y1Q + 0.16W where P is price, Q is quantity, Y1 is the price of a close substitute and W is the wage rate in the industry. Using this information, calculate the Lerner index for this industry. Does market power exist in the industry? Justify your answer
Transcribed Image Text:Suppose you had a Bresnahan type of econometric study of the mid-range hotel (accommodation) industry, and this results in the following estimated demand and cost equations; Demand: P = 95.67 - 1.64Q + 0.75Y1 + 0.42Y1Q + 0.65 Y2 where P is price, Q is quantity, Y1 is the price of a close substitute and Y2 is consumers' income. Cost equation: P = 2.67 +0.21Q-0.36Y1Q + 0.16W where P is price, Q is quantity, Y1 is the price of a close substitute and W is the wage rate in the industry. Using this information, calculate the Lerner index for this industry. Does market power exist in the industry? Justify your answer
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