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 11PAA
To determine
To interpret:Report of the statement.
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In 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
-…
Assume Boeing Inc. (of the United States) and Airbus Industrie (of Europe) rival for monopoly profits in Turkey's aircraft
market. Suppose the two firms face identical cost and demand conditions, as seen in the figure below.
Figure: Strategic Trade Policy: Boeing vs. Airbus
$/Millions
16
14
12
10
8
MCo(no subsidy
6.
MC
I(subsidy)
MR
Demand
8
10
12
14
16
a) Referring to the above figure, assume that Boeing is the first to enter the Turkish market. Without a
govemmental subsidy, the firm maximizes profits by selling aircraft at a price of $ and realizes
profits totaling $_
b) Consider the figure. At the monopoly price as established by Boeing, Turkish consumers realize $
of
consumer surplus from the availability of aircraft.
) Consider the figure. Suppose the European government provides Airbus a subsidy of $4 million on each
aircraft manufactured, and that the subsidy convinces Boeing to exit the Turkish market. As the monopoly
seller, Airbus maximizes profit by selling_ aircraft at a…
If the top two companies in the fast food industry merged, their new market share would equal
17% of the market. This industry's new HHI would be 845.
According to the FTC's historical guidelines for mergers, would the FTC approve this merger?
Select the correct answer below:
Yes, the FTC would ignore the merger and allow it to go through.
Maybe. The FTC would scrutinize the merger and make a case-by-case decision.
No, the FTC would probably challenge the merger
Give step by step answer with final solution
Chapter 7 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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