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Chapter 23: Problem 15

An industry that has 100 firms, each with a 1 percen market share, would have a Herfindahl-Hirschman index of (LO1) a) 1 d) 1,000 b) 10 e) 10,000 c) 100

Short Answer

Expert verified
The Herfindahl-Hirschman Index (HHI) for an industry with 100 firms, each having a 1% market share, is calculated by squaring the market share of each firm (0.01) and summing the squared values: \(0.01^2 * 100\) = 0.01 or 1%. The short answer is a) 1.

Step by step solution

01

Identify the market share of each firm

In this case, each firm has an equal market share of 1%. So their market share as a decimal can be written as 0.01 (by dividing 1%/100).
02

Calculate the squared market share for each firm

Now we need to square the market share of each firm: \(0.01^2 = 0.0001\)
03

Calculate the Herfindahl-Hirschman Index (HHI)

To calculate the HHI, we need to sum the squared market shares of all 100 firms. Since each squared market share is the same (i.e., 0.0001), we can simply multiply the squared market share by the number of firms: HHI = 0.0001 * 100 = 0.01 or as a percentage, 1. So the correct answer is: a) 1

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Most popular questions from this chapter

Compared to the perfect competitor in the long run, the cutthroat oligopolist has a ( \(\mathrm{LO3})\) a) lower price and lower profits b) higher price and higher profits c) higher price and lower profits d) lower price and higher profits

Which statement is true? (LO2) a) Most of American industry is engaged in cutthroat competition. b) Most of American industry does not compete. c) Some oligopolistic industries are more competitive than others. d) None of these statements is true.

Which statement is false? (LO1) a) The cigarette and auto industries have high concentration ratios. b) OPEC is a cartel. c) Most oligopolies engage in outright collusion. d) None of these statements is false.

Game theory can be applied to each of the following concepts except \((\mathrm{LO5})\) a) a monopoly b) a cutthroat competition c) the kinked demand curve d) duopoly

An industry that is highly concentrated might have a Herfindahl-Hirschman index of (LO1) a) 20,000 d) 100 b) 2,000 e) 1 c) 800
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