Chapter 25, Problem 1WNG

### Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

Chapter
Section

### Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

# Calculate the Herfindahl index and the four-firm concentration ratio for the following industry:

To determine

Determine Herfindahl index and four-firm concentration ratio.

Explanation

The four-firm concentration ration can be calculated using the formula as follows:

Four-firmÂ concentrationÂ ratio=âˆ‘HighestÂ marketÂ shareÂ ofÂ theÂ fourÂ firmsÂ Â Â Â Â Â Â Â (1)

Herfindahl index can be calculated using the formula as follows:

HerfindahlÂ index=(S1)2+(S2)2+â‹¯+(Sn)2Â Â Â Â Â Â Â Â (2)

Here

S1 and Sn are the market shares.

Table-1 shows the value of the market share of the firms as follows:

Use Equation -1 to calculate the four-firm concentration ratio as follows:

Four-firmÂ concentrationÂ ratio=17%+15%+14%+14%=60%

Therefore, the four-firm concentration ratio is 60%

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