Answers to Study Questions Set 8

Answers to Study Questions Set 8 - Answers to Study...

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Answers to Study Questions Set 8 Page 252 Question 7 ( Key Question ) Answer the following questions, which relate to measures of concentration: a. What is the meaning of a four-firm concentration ratio of 60 percent? 90 percent? What are the shortcomings of concentration ratios as measures of monopoly power? b. Suppose that the five firms in industry A have annual sales of 30, 30, 20, 10, and 10 percent of total industry sales. For the five firms in industry B the figures are 60, 25, 5, 5, and 5 percent. Calculate the Herfindahl index for each industry and compare their likely competitiveness. A four-firm concentration ration of 60 % means the largest four firms in an industry account for 60 % of sales; a four-firm concentration ratio of 90 % means the largest four firms account for 90 percent of sales. Shortcomings: (1) they pertain to the whole nation, though relevant markets may be localized; (2) they do not account for inter-industry competition; (3) the data are for Canadian products, not imports; and (4) they don’t reveal the dispersion of size among the top four firms. Herfindahl index for A: 2,400 (= 900 + 900 + 400 + 100 + 100). For B: 4,300 (= 3,600 + 625 + 25 + 25 +25). We would expect industry A to be more competitive than Industry B, where one
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This note was uploaded on 10/13/2009 for the course ECON 1220 taught by Professor Evans during the Winter '08 term at Langara.

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Answers to Study Questions Set 8 - Answers to Study...

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