Question 1

Interindustry competition means that

Accepted Answer

Interindustry competition refers to the scenario where products from different industries compete with each other, often because they serve as substitutes to meet the same or similar needs of consumers.

Question 2

The industry characterized by these data is

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The answer of  The industry characterized by these data...

Question 3

Suppose the Herfindahl indexes for industries A, B, and C are 7,200, 5,000, and 1,500, respectively. These data imply

Accepted Answer

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.

Question 4

If a product such as cement or bricks is costly to ship and, therefore, markets are very localized, the national concentration ratio for that industry

Accepted Answer

The national concentration ratio may understate the degree of monopoly in industries where products are costly to ship and markets are localized, because even if a few companies dominate the national market, local markets could be monopolized by different firms, leading to a higher degree of monopoly locally than the national ratio suggests.

Question 5

Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million, $150 million, $100 million, and $50 million, respectively. We can conclude that

Accepted Answer

The concentration ratio is calculated as the sum of the market shares of the top four firms, which in this case is (200 + 150 + 100 + 50) / 600 = 66.67%. Since this is more than 80%, we can conclude that the concentration ratio is more than 80 percent.

Question 6

The four-firm concentration ratio for an industry measures the

Accepted Answer

The four-firm concentration ratio measures the extent to which the four largest firms dominate the sales or market share in an industry, indicating the level of market concentration.

Question 7

Clear-cut mutual interdependence with respect to the price-output policies exists in

Accepted Answer

In an oligopoly, a few firms dominate the market, and each firm's actions, especially regarding price and output, directly affect the competitors. This creates a situation of mutual interdependence where firms must consider the potential reactions of their rivals when making strategic decisions.

Question 8

As a general rule, oligopoly exists when the four-firm concentration ratio

Accepted Answer

An oligopoly typically exists when the four-firm concentration ratio is 40 percent or more, indicating that a few firms dominate the market.

Question 9

The Herfindahl index for the industry described in this table is

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The answer of  The Herfindahl index for the industry...

Question 10

If the four-firm concentration ratio for industry X is 60,

Accepted Answer

The four-firm concentration ratio measures the total market share of the four largest firms in an industry. A 60 percent ratio means these firms account for 60 percent of total sales, not necessarily equal shares or advertising expenditures, nor does it directly indicate the market structure.

Question 11

An industry having a four-firm concentration ratio of 85 percent

Accepted Answer

A four-firm concentration ratio of 85 percent indicates that the four largest firms in the industry control 85 percent of the market. This high concentration suggests that the industry is dominated by a few firms, which is characteristic of an oligopoly.

Question 12

If an industry evolves from monopolistic competition to oligopoly, we would expect

Accepted Answer

When an industry evolves from monopolistic competition to oligopoly, it means that fewer firms are controlling a larger portion of the market. The four-firm concentration ratio, which measures the total market share of the four largest firms in the industry, would increase as the market becomes more dominated by a smaller number of firms.

Question 13

If the four-firm concentration ratio in an oligopolistic five-firm industry is 80 percent, and each firm has an equal percentage of sales, the Herfindahl index is

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The answer of If the four-firm concentration ratio in an...

Question 14

Concentration ratios may be inaccurate indicators of the degree of monopoly power in an industry because

Accepted Answer

Foreign competition is not considered in concentration ratios, which can lead to an underestimation of the competitive pressures faced by firms in an industry. Concentration ratios typically measure the market share of the largest firms within a specific industry domestically, without accounting for the impact of international competitors.

Question 15

Concentration ratios measure the

Accepted Answer

Concentration ratios are used to assess the market power of the largest firms within an industry by measuring the percentage of total industry sales they account for. This helps in understanding the level of competition and market control.

Question 16

Industries X and Y both have four-firm concentration ratios of 70 percent, but the Herfindahl index for X is 2,500, while that for Y is 2,000. These data suggest

Accepted Answer

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 concentration of market power within fewer firms. Therefore, with a Herfindahl index of 2,500, industry X has greater market power than industry Y, which has a Herfindahl index of 2,000.

Question 17

The four-firm concentration ratio for the industry described in this table is

Accepted Answer

The answer of  The four-firm concentration ratio for the...

Question 18

Aluminum competes with copper in the market for power transmission lines. This illustrates

Accepted Answer

Aluminum and copper are from different industries (metals industry for aluminum and the electrical industry for copper) but compete in the same market (power transmission lines), illustrating interindustry competition.

Question 19

Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is

Accepted Answer

The Herfindahl index is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For this industry, the calculation would be: $30^2 + 30^2 + 10^2 + 10^2 + 10^2 + 10^2 = 900 + 900 + 100 + 100 + 100 + 100 = 2,200.$

Question 20

Concentration ratios

Accepted Answer

Concentration ratios may understate the degree of competition if they ignore imported products, as these imports can provide significant competition to domestic firms, thereby increasing the overall competitive landscape of the market.

Quiz 14: Oligopoly and Strategic Behavior