In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation.Figure 14.2
In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-If the Herfindahl index for automobiles take foreign competition into account, the Herfindahl index for the U.S. automobile industry would be significantly higher.

Question

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation.Figure 14.2
  In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-If the Herfindahl index for automobiles take foreign competition into account, the Herfindahl index for the U.S. automobile industry would be significantly higher.

Quizplus · Accepted Answer

The Herfindahl index measures market concentration, and including foreign competition in the calculation for the U.S. automobile industry would increase the number of firms, thus lowering the index and indicating less concentration.

In the Following Figure, the First Panel Shows a Market