9. Based on the information given, indicate whether the following industry is be
ID: 1250544 • Letter: 9
Question
9. Based on the information given, indicate whether the following industry is best characterized by the model of perfect competition, monopoly, monopolistic competition, or oligopoly.a. Industry A has a four-firm concentration ratio of 0.005 percent and a Herfindahl-Hirschman index of 75. A representative firm has a Lerner index of 0.45 and a Rothschild index of 0.34.
b. Industry B has a four-firm concentration ratio of 0.0001 percent and Herfindahl-Hirschman index of 55. A representative firm has a Lerner index of 0.0034 and Rothschild index of 0.00023.
c. Industry C has a four-firm concentration ratio of 100 percent and Herfindahl-Hirschman index of 10,000. A representative firm has a Lerner index of 0.4 and Rothschild of 1.0.
d. Industry D has a four-firm concentration ratio of 100 percent and Herfindahl-Hirschman index of 5,573. A representative firm has a Lerner index equal to 0.43 and Rothschild index of 0.76
Explanation / Answer
A. Monopolistic Competition - the low concentration ratio, HHI, Lerner index, and Rothschild index indicate competition, however, they are not low enough to be considered perfect competition. B. Perfect Competition - the characteristics of Industry B indicate a large number of sellers, and that they are price takers. An HHI of 0 would be completely perfectly competitive. The concentration ratio and other indices signal the same. C. Monopoly - the characteristics of Industry C indicate a monopoly because the concentration ratio cannot increase. The HHI, Lerner index, and Rothschild index are at their maximum, too. D. Oligopoly - the characteristics of Industry D indicate that there are only four firms. By process of elimination, this cannot represent any sort of highly competitive scenario and there is clearly more than one seller; therefore not a monopoly.
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