## Chapter13:Monopolistic Competition and Oligopoly (+ Appendix)

### Worked Problems

Problem 13.1 - actions of market concentration

 Problem:Suppose the the 6 this firm in an industry have actually total yearly sales that \$70 billion, \$40 billion, \$30 billion, \$30 billion, \$20 billion, and also \$10 billion.You are watching: The four-firm sales concentration ratio for an industry measures theWhat is the four-firm concentration proportion in this industry?What is the Herfindahl index because that this industry?Suppose one more industry has a Herfindahl table of contents of 4000. What can you conclude about the loved one competitiveness of these 2 industries? Answer:The four-firm concentration ratio is the proportion of the sales the the four largest firms in the sector relative to complete industry sales, expressed together a percentage. In this industry, full sales space \$200 billion and the optimal four combined have sales that \$170 billion. The four-firm concentration ratio is climate 170/200 = .85, or 85%.The Herfindahl table of contents is computed as the amount of the squared industry shares for every firms in the industry. In this example, the 6 firms have actually market share of 35%, 20%, 15%, 15%, \$10%, and 5%. The table of contents is 352 + 202 + 152 + 152 + 102 + 52 = 2200.Larger index numbers correspond to much more highly concentrated industries. Accordingly, that company in the 2nd industry are likely to have an ext market power.

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