Industries X and Y both have four-firm concentration ratios of 63 percent, but the Herfindahl index for X is 1,273, while that for Y is 1,197. These data suggest
A)greater market power in Y than in X.
B)greater market power in X than in Y.
C)both industries are monopolistically competitive.
D)that price competition is stronger in X than in Y.

Question

Quizplus · 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. Therefore, with a Herfindahl index of 1,273, industry X has greater market power than industry Y, which has a Herfindahl index of 1,197.

Industries X and Y Both Have Four-Firm Concentration Ratios of 63