Asked by Ogheneruno Siakpebru on May 14, 2024
Verified
Suppose the Herfindahl indexes for industries A, B, and C are 7,200, 5,000, and 1,500, respectively. These data imply
A) that market power is greatest in industry C.
B) that market power is greatest in industry B.
C) that market power is greatest in industry A.
D) nothing about the degree of concentration across the three industries.
Herfindahl Indexes
Measures of market concentration, calculated as the sum of the squares of the market shares of all firms within the industry.
Market Power
The ability of a firm or group of firms to influence the price and production levels in the market to their advantage, often due to limited competition.
- Identify the concept of the Herfindahl index and its application in assessing market concentration.
Verified Answer
CS
Camryn StaffordMay 15, 2024
Final Answer :
C
Explanation :
The Herfindahl index is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. A higher Herfindahl index indicates a higher level of concentration and potentially less competition, implying greater market power. Therefore, with an index of 7,200, industry A has the greatest market power.
Learning Objectives
- Identify the concept of the Herfindahl index and its application in assessing market concentration.