16. The accompanying table shows the Herfindahl-Hirschman Index (HHI) for the re
ID: 1124509 • Letter: 1
Question
16. The accompanying table shows the Herfindahl-Hirschman Index (HHI) for the restaurant, cereal, movie and laundry detergent industries, as well as the advertising expenditures of the top 10 firms in each industry in 2006. Use the information in the table to answer the following questions: Industry Restaurants Cereal Movie Studios Laundry Detergent HHI 179 2,098 918 2,068 Advertising Expenditures (Millions) $1,784 732 3,324 132 Which market structure-oligopolistic or monopolistic competition-best describes each market structure? Why? Based on your answer to part a), which type of market structure has the highest advertising expenditures? Use the characteristics of each market structure to explain why this relationship might exist, a) b)Explanation / Answer
a) When HHI is close to 0 it is perfect competition and when HHI is 10,000 it indicates monopoly . Oligopoly is smilar to monopoly , only difference is instead of just one firm there are few . Monopolistic competition is mixture of monopoly and perfect comppetition where there are many firms but all producing differentiated products . So here Cereal and Laundry detergent are oligopoly . While the other two are monopolistic competition .
b) Monopolistic competition has highest advertising expenditure . In this market structure since firms are selling differentiated products so they need to advertise more . In oligopoly there are very few firms , so advertisiing is not so high .
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