Danielle Cirillo Econ 202-01 Chapter 11 Pg. 231-232 7, 8 Dr. Abdulahad 7. A. The meaning of a four-firm concentration ratio of 60 percent means out of all the industries the largest four accounts for 60 percent of the sales made. A 90 percent concentration ratio mean the top four industries account for 90 percent of the sales made. There are three shortcomings of concentration ratios as measures of monopoly power. They are Localized markets where concentration ratios pertain to the nation as a whole. The markets for some products are highly localized because of high transportation costs. Second shortcoming is interindustry competition, which is competition between two products associated with different industries. The third shortcoming is world trade which concentration may be overstated because they do not account for the import competition of foreign suppliers. B. Herfindahl index= (%S1)^2 + (%S2)^2 + (%S3)^2 +…. .+(%Sn)^2 Firm 1= 900+900+400+100+100=2400 Firm 2= 3600+625+ 25+ 25+25=4300
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Danielle Cirillo Econ, percent concentration ratio