Question

Suppose that the most popular car dealer in your area sells 12.50 percent of all vehicles. Instructions: Enter your answers as whole numbers. a. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area? . b. In that same situation, what would the four-firm concentration ratio be? percent.

Suppose that the most popular car dealer in your area sells 10 percent of all vehicles.
Instructions: Enter your answers as whole numbers.
a. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area?

Answer 1

The highest possible Herfindahl-Hirschman Index (HHI) when the largest dealer has a 12.5% market share would be 1250, and the four-firm concentration ratio would be 50%. If the top dealer has a 10% share, the highest HHI would be 1000, given similar market shares for the remaining firms.

Step-by-step explanation:

The Herfindahl-Hirschman Index (HHI) and the four-firm concentration ratio are both measures of market concentration and competition. When the largest car dealer has 12.5% of the market, and all other dealers sell the same or fewer vehicles, the largest possible HHI occurs when each firm has an equal market share. With eight firms (100% / 12.5%), each would have a market share of 12.5%, and the HHI would be the sum of the square of each firm's market share in percentage terms, which is 8 * (12.5^2), giving an HHI of 1250. Conversely, the four-firm concentration ratio would be 4 * 12.5, resulting in 50%

For the second scenario, where the top dealer sells 10% of vehicles, the highest HHI would be achieved if there were ten firms each with 10% of the market. Thus, the HHI would be 10 * (10^2) = 1000. It's important to notice that both calculations are based on the assumption that the remaining firms have equal or smaller shares than the largest firm.