Final answer:
The question is about business metrics for measuring industry concentration - the four-firm concentration ratio and the Herfindahl-Hirschman Index (HHI). The four-firm concentration ratio of the industry in question is 70%, indicating significant market concentration, while the HHI would offer a more nuanced view that includes all firms and weights them according to size.
Step-by-step explanation:
The question provided pertains to market share and industry concentration, a common topic within the field of microeconomics. Particularly, the focus is on measuring how concentrated an industry is by using metrics like the four-firm concentration ratio and the Herfindahl-Hirschman Index (HHI). The student's question regarding nine firms with varying market shares highlights the importance of these metrics in assessing the level of competition within a market.
To illustrate, let us calculate the four-firm concentration ratio for the industry described. This ratio sums the market shares of the four largest firms. In the given example:
- Firm A: 30%
- Firm B: 20%
- Firm C: 10%
- Firm D: 10%
The four-firm concentration ratio is 30% + 20% + 10% + 10% = 70%. This indicates that the four largest firms have a substantial portion of the market, which implies less competition as compared to an industry where this concentration ratio would be lower.
To further assess market concentration, we can utilize the Herfindahl-Hirschman Index (HHI), which accounts for the size of each firm relative to the industry and squares the market shares of each firm before summing them up. The HHI not only includes the largest firms but all firms within an industry, giving higher weight to the larger firms, which is useful in revealing the competitive landscape more effectively than the four-firm concentration ratio alone.