   Chapter 25, Problem 1WNG

Chapter
Section
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-firm concentration ratio=Highest market share of the four firms        (1)

Herfindahl index can be calculated using the formula as follows:

Herfindahl index=(S1)2+(S2)2++(Sn)2        (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-firm concentration ratio=17%+15%+14%+14%=60%

Therefore, the four-firm concentration ratio is 60%

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