Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 14, Problem 5.1P
(a)
To determine
Four firm concentration ratio.
(b)
To determine
Herfindahl Herschman Index (HHI).
(c)
To determine
Level of concentration.
(d)
To determine
Measuring merger concentration
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Assume there are six companies in a certain industry. Four companies have $10 sales apiece, while two companies have $5 sales each. What is the industry's four-firm concentration ratio?
Suppose that the most popular car dealer in your area sells 10 percent of all vehicles. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area? In that same situation, what would the four-firm concentration ratio be?
Suppose an industry has 50 firms, each with an equal 2 percent share of the market. According to the Herfindahl-Hirschman Index (HHI), if two firms propose to
merge, will the Department of Justice and the Federal Trade Commission allow it?
First, the HHI before the proposed merger is
(Enter your response as an integer value.)
With the proposed merger, the HHI is (Enter your response as an integer value.)
The Department of Justice and the Federal Trade Commission
challenge the proposed merger.
probably would not
would
may
would not
Chapter 14 Solutions
Principles of Economics (12th Edition)
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- Suppose that a small town has six burger shops whose respective shares of the local market are (as percentages of all hamburgers sold): 26%, 20%, 18%, 14%, 12%, 10%, What is the four-firm concentration ratio of the hamburger industry and what is the Hirchmann Herfindahl Index (HHI) for the hamburger industry in this town?arrow_forwardSuppose an industry is composed of six firms. Four firms have sales of $10 each, and two firms have sales of $5 each. What is the four-firm concentration ratio for this industry?arrow_forwardIn the table below are data on five different industries and the market shares for each of the firms in the industry. Assume that there is no foreign competition, entry into the industry is difficult, and that no firm in each industry is on the verge of bankruptcy. Calculate the Concentration ration (CR4) and Herfindahl-Hirschman index (HHI) for each industry. Which industry has the most monopoly power and which industry has the least monopoly power based on HHI? If the sixth firm in the aviation industry sought to merge with the fifth firm in that industry, would the government be likely to challenge the merger? Find post-merger HHI and compare with pre-merger HHI Market Share of Firms in Industry (F) Industry F1 F2 F3 F4 F5 F6 Herfindahl index CR4 Aviation 25 20 15 15 15 10 Textiles 25 25 25 15 10 - Chemicals 40 15 15 15 15 - Computers 35 25 20 10 10 -…arrow_forward
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