Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 14.2, Problem 1QQ
To determine
Calculate Herfindahl index.
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Industry A consists of four firms, each of which has an equal share of the market.
Compute the Herfindahl-Hirschman index for the industry.
Industry B consists of 10 firms, each of which has an equal share of the market. Compare the Herfindahl–Hirschman Indexes for the two industries.
Now suppose that there are 100 firms in the industry, each with equal shares. What is the Herfindahl-Hirschman index for this industry?
State the general relationship between the competitiveness of an industry and its Herfindahl-Hirschman index
Suppose there are five firms in an industry. Their sales (that is, total revenue) are as follows:
I. Firm 1: 98 million.
II. Firm 2: 46 million
III. Firm 3: 46 million
IV. Firm 4: 14 million.
V. Firm 5: 6 million
The Herfindahl-Hirschman Index (HHI) for this industry is (Enter your response as an integer.)
3,312
5,312
4,312
2,312
Consider an industry with 4 firms. All 4 firms and their yearly sales are listed in
the table below:
Firms and Yearly Sales
Firm
Yearly Sales (in
Millions)
Jamco
$104
Kami Inc
$95
Lumperson
$86
$69
Montour & Sons
What is the Herfindahl-Hirschman Index (HHI) for this industry?
Chapter 14 Solutions
Microeconomics
Ch. 14.2 - Prob. 1QQCh. 14.2 - The D2e segment of the demand curve D2eD1 in graph...Ch. 14.2 - Prob. 3QQCh. 14.2 - Prob. 4QQCh. 14 - Prob. 1DQCh. 14 - Prob. 2DQCh. 14 - Prob. 3DQCh. 14 - Prob. 4DQCh. 14 - Prob. 5DQCh. 14 - Prob. 6DQ
Ch. 14 - Prob. 7DQCh. 14 - Prob. 8DQCh. 14 - Prob. 9DQCh. 14 - Prob. 10DQCh. 14 - Prob. 11DQCh. 14 - Prob. 12DQCh. 14 - Prob. 13DQCh. 14 - Prob. 14DQCh. 14 - Prob. 1RQCh. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - Prob. 9RQCh. 14 - Prob. 10RQCh. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3P
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- The table below shows market share data for different firms producing desks. Market Share in % 15 18 7 11 6 10 4 5 5 16 Firm Aardvark Inc Baluga, LLC Cran Inc Delta Co Echo Co Farriss Co Gum Drop Inc Hill Corp Indigo Corp Jackson Co What is the Herfindahl Hirschman Index (HHI) for this market? ← HHI 225 324 49 121 36 100 16 25 25 256 Suppose that Delta Co and Gum Drop Inc are considering a merger. What will the HHI be after this merger?arrow_forwardQuestion 35 Suppose there are 3 firms in a market. The largest firm has sales of $60 million and each of the other two firms has sales of $25 million. The Herfindal-Hirshman Index of this industry is: 2,500 3,750 2,550 4008arrow_forward1. Exercise 16.2 An industry is composed of Firm 1, which controls 50 percent of the market, Firm 2 with 30 percent of the market, and Firm 3 with 10 percent of the market. About 20 firms of approximately equal size divide the remaining 10 percent of the market. What is the Herfindahl-Hirschman Index for the industry? (Hint: Assume the 20 firms that make up 10 percent of the market constitute one firm.)What will the Herfindahl-Hirschman Index be if Firm 2 and Firm 3 merge? (Hint: Assume that the combined market share after the merger is 40 percent) Based on the HHI scores, will the government consider the merger of Firm 2 with Firm 3 to be procompetitive or anticompetitive? Anticompetitive Procompetitiarrow_forward
- Herfindahl index bounds. Suppose you only know the value of the market shares for the largest m firms in a given industry. While you do not possess sufficient information to compute the Herfindahl index, you can find a lower and an upper bound for its values. How?arrow_forward21. Recall the market is composed of 50% responsible firms run by LSU graduates ($50/share fundamentals), 40% medium quality firms run by Grambling State graduates ($40/share fundamentals), and 10% untrustworthy sleazeball firms run by greased-out weasels (the animal, not the human-therefore their stock is worth $0/share, fundamentally). How much of the market would LSU grads have to take over for your willingness-to-pay to catch up to their firms stock prices? 100%arrow_forward.A measure called Herfindahl-Hirschman Index is used to measure the degree of competition in an industry. The HHI is the square of each firm’s market share summed over the firms in the industry. (Where a market share is the percentage of sales in the market accounted for by that firm). For example, if an industry contains only three firms and their market shares are 60%, 25%, and 15% then the HHI (by squaring each firm’s share and summing them) is 4450. Some economists classify the market structures according to HHI scores. An HHI below 1,500 indicates a strongly competitive market, between 1,500 and 2,500 indicates a somewhat competitive market, and over 2,500 indicates an oligopoly. Given the information in the table, calculate the HHI in this industry. If yahoo and Bing were to merge, what would the HHI be? Google 67% Yahoo 18 Bing 11 Ask 3 AOL 1arrow_forward
- B.A measure called Herfindahl-Hirschman Index is used to measure the degree of competition in an industry. The HHI is the square of each firm's market share summed over the firms in the industry. (Where market share is the percentage of sales in the market accounted for by that firm). For example, if an industry contains only three firms and their market shares are 60%, 25%, and 15% then the HHI (by squaring each firm's share and summing them) is 4450. Some economists classify the market structures according to HHI scores. An HHI below 1,500 indicates astrongly competitive market, between 1,500 and 2,500 indicates a somewhat competitivemarket, and over 2,500 indicates an oligopoly. Given the information in the table, calculate the HHI in this industry. If yahoo and Bing were to merge, what would the HHI be? Search engine Market share Google 67% Bing 18 Yahoo! 11 Activate Windo Go to Settings to act Ask 3 AOL 1arrow_forwardQUESTION 1 Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy, each will realize a $20 million profit. Alpha will realize a $10 million profit and Beta a $30 million profit. each will realize a $15 million profit. Beta will realize a $10 million profit and Alpha a $30 million profit. Q#2 Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Beta commits to a high-price policy, Alpha will gain the largest profit by engaging in nonprice competition only. also adopting a high-price policy. adopting a low-price policy. adopting a low-price policy, but only if Beta agrees to do the same. Q#3 Refer to…arrow_forwardThe following table lists the market shares of the eight firms in an industry. Market Shares for Eight Firms in an Industry Firm Market Share 1 4040 2 2525 3 1515 4 1010 5 55 6 33 7 11 8 11 Calculate the Herfindahl-Hirschman Index (HHI) for this industry. Enter your answer in the box below, and round to the nearest whole number if necessary.arrow_forward
- Industry A consists of four firms, each of which has an equal share of the market. What is the Herfindahl–Hirschman index for the industry?arrow_forwardUnsure which is the correct answers Suppose that three firms make up the entire wig manufacturing industry. One has a 50% market share, and the other two have a 25% market share each. The Herfindahl index of this industry is a. 3,750 b. 1,000 c. 10,000 d. 5,000 e. 2,500 Mane Attraction, one of the firms with a 25% market share in the wig manufacturing industry, leaves the market. This would cause the Herfindahl index for the industry to __-- a. remain the same b. fall c. rise The largest possible value of the Herfindahl index is 10,000 because: a. an index of 10,000 corresponds to 100 firms with a 1% market share each b. an index of 10,000 corresponds to a monopoly firm with 100% market share c. an industry with an index higher than 10,000 is automatically regulated by the Justice Departmentarrow_forwardAssume you are comparing two firms that are identical in every respect, except one is levered and one is unlevered. Which one of the following statements is correct regarding these two firms? A- The unlevered firm will have higher EPS at relatively low levels of EBIT B- The levered firm his higher EPS than the unlevered format the break-even point C-The levered firm will have higher EPS than the unlevered firm at all levels of EBIT D- The unlevered firm will have higher EPS than the levered firm a t relatively high levels of EBIT E- The EPS for the unlevered firm will always exceed those of the levered firmarrow_forward
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