Suppose that a small town has seven burger shops whose respective shares of the

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): 25%, 22%, 18%, 12%, 11%, 8%, and 4%. Instructions: Enter your answers as whole numbers. a.What is the four-firm concentration ratio of the hamburger industry in this town? 77 %. 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 .

Explanation / Answer

a.   77%

As the four-firm concentration ratio is the ratio of the sales of the four largest firms in the industry relative to total industry sales, expressed as a percentage. So 25 + 22 + 18 + 12 = 77%

b. 1778

The Herfindahl index is computed as the sum of the squared market shares for all firms in the industry. In this example, the 7 firms have market shares of 25%, 22%, 18%, 12%, 11% 8% and 4%. The index is 252 + 222 + 182 + 122 + 112 + 82+ 42 = 1778.

c

i. 96%

ii 4554

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