Measures of Concentration: What is the four-firm concentration ratio and the Herfindal index?
Answer the following questions, which relate to measures of concentration:
a. What is the meaning of a four-firm concentration ratio of 60 percent? 90 percent? What are the shortcomings of concentration ratios as measure of monopoly power?
b. Suppose that the five firms in industry A have annual sales of 30, 30, 20, 10 and 10 percent of total industry sales, For the five firms in industry B the are figures are 60, 25, 5, 5 and 5 percent. Calculate the Herfindahl index for each industry and compare their likely competitiveness.
This solution explains the measures of concentration in 224 words.
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