ECON 101 2Midtermreview

There are no restrictions to entry into the industry

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Unformatted text preview: sales accounted for by the four largest firms in the industry. The Herfindahl–Hirschman Index The Herfindahl–Hirschman index (HHI) is the square of percentage market share of each firm summed over the largest 50 firms in the industry. The larger the measure of market concentration, the less competition that exists in the industry. Limitations of Concentration Measures The main limitations of only using concentration measure as determinants of market structure are The geographical scope of the market Barriers to entry and firm turnover The correspondence between a market and an industry Why Firms? Firms coordinate production when they can do so more efficiently than a market. Four key reasons might make firms more efficient. Firms can achieve Lower transactions costs Economies of scale Economies of...
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