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

### Worked Problems

Problem 13.1 - measures of sector concentration

 Problem:Suppose that the 6 that company in an industry have total yearly sales of \$70 billion, \$40 billion, \$30 billion, \$30 billion, \$20 billion, and \$10 billion.You are watching: The four-firm concentration ratio for an industry measures theWhat is the four-firm concentration ratio in this industry?What is the Herfindahl index for this industry?Suppose another industry has a Herfindahl table of contents of 4000. What have the right to you conclude around the relative competitiveness of these 2 industries? Answer:The four-firm concentration ratio is the proportion of the sales the the four largest this firm in the sector relative to full industry sales, expressed together a percentage. In this industry, total sales space \$200 billion and the height 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 sum of the squared sector shares for all firms in the industry. In this example, the 6 firms have actually market share of 35%, 20%, 15%, 15%, \$10%, and 5%. The index is 352 + 202 + 152 + 152 + 102 + 52 = 2200.Larger table of contents numbers exchange mail to more highly concentrated industries. Accordingly, this firm in the second industry are most likely to have an ext market power.

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