The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers is most suggestive that the industry is monopolistically competitive?
A)32 and 540
B)48 and 870
C)76 and 1,689
D)95 and 3,542

Question

Quizplus · Accepted Answer

A monopolistically competitive industry is characterized by many firms, differentiated products, and low barriers to entry. This results in a lower four-firm concentration ratio and a lower Herfindahl index, indicating a more competitive market with less concentration of market power among the top firms. Option A, with a concentration ratio of 32 and a Herfindahl index of 540, suggests a less concentrated industry, aligning more closely with the characteristics of monopolistic competition.

The Following Are the Respective Numbers for the Four-Firm Concentration