Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 7, Problem 10CACQ
To determine
To explain:
The industry which leads to the greater increase in social welfare.
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The four-firm concentration ratios for industries X and Y are 81 percent and 74 percent, respectively, while the corresponding Herfindahl-Hirschman indexes are 3,100 and 1,600. The Dansby-Willig performance index for industry X is 0.7, while that for industry Y is 0.55. Based on this information, which would lead to the greater increase in social welfare: a slight increase in industry X’s output or a slight increase in industry Y’s output?
The four-firm concentration ratio for the industry described in this table is
Consider an industry consists of three firms (Firm-A, Firm-B and Firm-C) with sales of AED300,000, AED700,000, and AED250,000; respectively.
Calculate the Herfindahl-Hirschman index (HHI) for the industry.
Calculate the four-firm concentration ratio (C4).
Do you think the ‘Department of Justice’ (see the guideline below) would attempt to block a horizontal merger between Firm-A and Firm-C)?
The Department of Justice’s Guidelines (Suppose):
Suppose that the Department of Justice’s Guidelines suggest that antitrust authorities are more likely to challenge a merger when the relevant Herfindahl-Hirschman index is greater than 2,500 and the resulting increase in the index as a result of the merger is more than 200.
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- Assume there are six companies in a certain industry. Four companies have $10 sales apiece, while two companies have $5 sales each. What is the industry's four-firm concentration ratio?arrow_forwardThe inverse demand function in an industry with two firms is given as p = 50 – 2y, where y is the industry demand and p is the price. The firms have different technologies at their production plants with costs given as c(y1) = 10y, and c2[y2) = 14y2, where y = y,+ y2. 1. If the firms merge into one firm and become a monopoly in the industry, what will be the output of the merged firm? Comment on what would happen to the production plants under one ownership. Find the equilibrium price and profit. 2. Compare and comment on the total industry profits in these three market structures. 3. Assuming the firms are Bertrand duopolists, what is likely to happen? Explain verbally (no need to solve the problem).arrow_forwardQ42 Tha use of cannabis was legalized in Canada in 2017. The cannabis sector (Industry X) and the production of fertilizers used in growing cannabis (Industry Y) both have four-firm concentration ratios of 82 percent, but the Herfindahl index for X is 4,056, while that for Y is 3,975. These data suggest Multiple Choice both industries are experiencing X-inefficiency. greater market power in Y than in X. greater market power in X than in Y. that price competition is stronger in X than in Y. both industries are monopolistically competitive.arrow_forward
- Suppose an industry consists of three firms. Two firms have sales of $10 each, and one firm has sales of $30. What is the Herfindahl-Hirschman index for this industry? What is the four-firm concentration ratio?arrow_forwardIn the table below are data on five different industries and the market shares for each of the firms in the industry. Assume that there is no foreign competition, entry into the industry is difficult, and that no firm in each industry is on the verge of bankruptcy. Calculate the Concentration ration (CR4) and Herfindahl-Hirschman index (HHI) for each industry. Which industry has the most monopoly power and which industry has the least monopoly power based on HHI? If the sixth firm in the aviation industry sought to merge with the fifth firm in that industry, would the government be likely to challenge the merger? Find post-merger HHI and compare with pre-merger HHI Market Share of Firms in Industry (F) Industry F1 F2 F3 F4 F5 F6 Herfindahl index CR4 Aviation 25 20 15 15 15 10 Textiles 25 25 25 15 10 - Chemicals 40 15 15 15 15 - Computers 35 25 20 10 10 -…arrow_forwardAmerican Airlines (A) and Hawaiian Airlines (H) are two large airlines in the US market. The market has Market Demand: P = 506 - QM where QM denotes the number of passengers of the total market per day. American Airlines operates with a Fixed Cost of $3400 per day no matter whether the plane flies or not and at a Marginal Cost of $9 per passenger. While Hawaiian Airlines operates with a lower Fixed Cost of $2400 per day no matter whether the plane flies or not and at a higher Marginal Cost of $17 per passenger. Suppose now American Airlines and Hawaiian Airlines are competing in Price, i.e. they are in Bertrand Competition. Suppose both airlines can only set the price as an integer. If the airline loses the market, it supplied 0 quantity. Answer the following questions from the drop-down list: 1. American Airlines' Equilibrium Price = $ 2. Hawaiian Airlines' Equilibrium Price = $ 3. American Airlines' Equilibrium Quantity = 4. Hawaiian Airlines' Equilibrium Quantity = 5. Profit of…arrow_forward
- Consider a type of product whose market structure is monopolistic competition. In the shift from no trade in this type of product to free trade Multiple Choice a country will export the product only if the world price is higher than the country's no-trade price. the number of varieties or models of this type of product available to consumers will increase. factor prices in a country will change by large amounts If most of the country's trade in this type of product is Intra-Industry trade. the extra demand from foreign buyers for this type of product will increase the product price.arrow_forwardAOF is the only firm selling beer around Isla Vitas, which has a beer fountain in the backyard so the marginal cost of producing beer is 0. There are two groups of consumers: students and non students. The students' beer inverse demand function is p=50-5q, and the non-students' beer inverse demand function is p=10-2q. AOF sells beer in two sizes: 10 ounces bottle and 5 ounces can. Due to a local act, the consumers can only buy either 1 bottle or 1 can of beer. AOF can charge different prices on each bottle and each can of beer, while it cannot tell whether a customer is a student or not. In order to maximize the profits, how much should AOF charge its 10 ounces bottle? Answer: 87.5arrow_forwardThe Costa Rican gimble industry consists of 14 firms whose annual sales are as shown in the table below: \table[[Firm, Sales (in millions)], [A, 4], [B, 8], [C, 12], [D, 18], [E, 23], [F, 17], [Next eight firms (total), 18]] a. What is the (four-) firm concentration ratio for this industry? Four firm concentration: % b. In what type of market does the gimble industry operate? Market type: c The Costa Rican gimble industry consists of 14 firms whose annual sales are as shown in the table below: Firm A Sales (in millions) 4 B C D E F Next eight firms (total) 8 12 18 23 17 18 a. What is the (four-) firm concentration ratio for this industry? Four firm concentration: % b. In what type of market does the gimble industry operate? Market type: (Click to select) varrow_forward
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