Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
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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Suppose an industry consists of three firms. Two firms have sales of $10 each, and one firm has salesof $30. What is the Herfindahl-Hirschman index for this industry?
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?
.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 1
Chapter 14 Solutions
Economics (Irwin Economics)
Ch. 14.2 - Prob. 1QQCh. 14.2 - The D2e segment of the demand curve D2eD1 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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- 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_forwardSuppose 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 2,312arrow_forwardConsider 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?arrow_forward
- Use the information in the table below. Percentage of Sales Firm 1 Firm 2 Firm 3 Firm 4 Which of the industries is the most concentrated based on the Herfindahl Index? Industry type your answer... What is this industry's Herfindahl Index? type your answer... Industry 1 Industry 2 Industry 3 Industry 4 55% 45% 25% 10% 35% 40% 25% 20% 35% 10%- 10% 60% 10% 20%arrow_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_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_forward
- Unsure 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_forwardIndustry 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_forwardQUESTION 8 Appel and Samseng were 2 rival companies in producing smartphones but both have recently been bought by a billionaire, Eelon Mask. Appel is able to produce 500 phone processors in one day or assemble 600 phones in one day. Samseng is able to produce 430 phone processors in one day or assemble 550 phones in one day. Eelon wants both companies to specialise so he can maximise their output. Select the item from the list provided to make the following statements true. - - ✓ Appel has absolute advantage in ✓ Opportunity cost of Samseng assembling 1 phone is ✓ Samseng has in assembling phones. 1. producing 1.20 phone processors 2. absolute advantage 3. both producing phone processors and assembling phones 4. producing 0.78 phone processors 5. producing 0.83 phone processors 6. neither absolute nor comparative advantage 7. neither producing phone processors nor assembling phones 8. comparative advantage 9. assembling phones 10. producing 1.28 phone processors 11. producing phone…arrow_forward
- 21. 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_forwardSuppose 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_forwardAn industry consists of 4 firms. The market shares of each firm are 40% for Firm 1, 30% for Firm 2, 20% for Firm 3, and 10% for Firm 4. What is the HHI for this industry?arrow_forward
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