Question

Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 23%, 22%, 18%, 12%, 11%, 8%, and 6%. Instructions: Enter your answers as whole numbers. a. What is the four-firm concentration ratio of the hamburger industry in this town? %. b. What is the Herfindahl index for the hamburger industry in this town? . c. If the top three sellers combined to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index? The four-firm concentration ratio would be %. The Herfindahl index would be ___.

Answer 1

a. 75%

b. 1702

c. The four-firm concentration ratio and the Herfindahl index would increase

94%

4334

Step-by-step explanation:

The four firm concentration ratio adds the concentration ratio of the four largest firms in the town

The four firm concentration ratio = 23% + 22% + 18% +12% = 75%

The Herfindahl index for the hamburger industry in the town is the sum of the squares of the concentration ratios of the 7 firms.

The Herfindahl index = 529 + 484 + 324 + 144 +121 + 64 + 36 = 1702

If the top 3 firms merged, the concentration ratio of the merged firm = 23% + 22% + 18% = 63%

The four firm concentration ratio = 63% + 12% + 11% + 8% = 94%

The Herfindahl index = 3969 + 144 + 121 + 64 + 36 = 4334

I hope my answer helps you