A market is considered competitive if the Herfindahl-Hirschman Index (HHI)is ________ and its four-firm concentration ratio is ________.

Question

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A market is considered competitive if the HHI is low (less than 1,500) and its four-firm concentration ratio is low (less than 40 percent). Choice A is incorrect because a high HHI and high concentration ratio indicate a highly concentrated market. Choice B is incorrect because a high HHI indicates a highly concentrated market, while a low concentration ratio indicates a market with a smaller concentration of market power among the top firms. Choice C is incorrect because a low concentration ratio alone is not enough to indicate a competitive market, since it may be that a few very large firms dominate the market while there are many small firms with little market power. Choice E is incorrect because the specific values given (30-70 percent and greater than 5,000) are not universally accepted thresholds for competitive markets.

A Market Is Considered Competitive If the Herfindahl-Hirschman Index (HHI)is