Suppose that a particular industry has a four-firm concentration ratio of 25 and a Herfindahl index of 600. Most likely, this industry would achieve
A)$15M for firm A and $5M for firm B.
B)$17M for firm A and $17M for firm B.
C)$3M for firm A and $3M for firm B.
D)$5M for firm A and $15M for firm B.

Question

Quizplus · Accepted Answer

The Herfindahl index of 600 suggests a relatively low level of market concentration, indicating that the industry is not dominated by a few large firms. A four-firm concentration ratio of 25 also supports this, as it means the top four firms only account for 25% of the market. Therefore, the industry is likely more competitive, with smaller firms like $3M for firm A and $3M for firm B.

Suppose That a Particular Industry Has a Four-Firm Concentration Ratio