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Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is:
- A. 1560.
- B. 2150
- C. 2340
- D. 3500
- Correct Answer: Option B
Industry X is dominated by four large firms that hold market shares of 30, 30, 20, and 20. The Herfindahl index for this industry is:
- A. 100.
- B. 2600
- C. 3200
- D. 4400
- Correct Answer: Option B
You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that the industry is:
- A. concentrated because each firm has 20 percent of industry sales.
- B. concentrated because the four largest firms account for 80 percent of the industry sales.
- C. not concentrated because the four largest firms account for 20 percent of industry sales.
- D. not concentrated because each firm only accounts for 5 percent of industry sales.
- Correct Answer: Option C
The Herfindahl index is a measure of:
- A. profitability in an industry.
- B. the price level in an industry.
- C. kinked demand in an industry.
- D. market power in an industry.
- Correct Answer: Option D
Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that:
- A. the Herfindahl index would be significantly higher in that industry because there are more firms in the industry.
- B. the industry is less concentrated than suggested by domestic concentration ratios.
- C. there is a high degree of interindustry competition.
- D. there is a low degree of interindustry competition.
- Correct Answer: Option B
The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of:
- A. overt collusion.
- B. covert collusion
- C. import competition
- D. interindustry competition.
- Correct Answer: Option D
The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers would indicate that the industry is oligopolistic?
- A. 10 and 50
- B. 24 and 263
- C. 25 and 207
- D. 77 and 1807
- Correct Answer: Option D
In an oligopolistic industry, the four-firm concentration ratio would be:
- A. high, and the Herfindahl index would be high.
- B. high, and the Herfindahl index would be low.
- C. low, and the Herfindahl index would be high.
- D. low, and the Herfindahl index would be low.
- Correct Answer: Option A
Which industry would be considered to be oligopolistic based on the four-firm concentration ratio and the Herfindahl index data?
- A. textile bags
- B. bolts, nuts, and rivets
- C. ready mix concrete
- D. glass containers
- Correct Answer: Option D
The larger the Herfindahl index, the:
- A. less the degree of import competition in an industry.
- B. greater the degree of import competition in an industry.
- C. less the degree of market power in an industry.
- D. greater the degree of market power in an industry.
- Correct Answer: Option D