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

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 7E

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