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Monopoly and Monopolistic

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Monopoly and Monopolistic Competition
DQ1. There are four firms in an industry with the following market shares:

Firm 1 30%

Firm 2 25%

Firm 3 25%

Firm 4 20%

a) Calculate the Herfindahl Hirschman Index for the industry.

b) What is the number of effective competitors in this market? Show your calculation.

DQ 2. Suppose the demand curve for a monopolist is given as:

Qd = 500- P

MR = 500 - 2Q

The monopolist has a constant marginal and average total cost of \$50 per unit.

a) Determine the monopolist's profit-maximizing price and output.

b) Calculate the monopolist's profit.

c) What is the Lerner Index for the industry?

DQ 3. There are two industries, A and B; and each industry consists of four firms. However, each of the four firms in industry A has a 25% market shares while those firms in industry B have 80% 10%, 5% and 5% market respectively..

a) Calculate the three- and four-firm concentration ratios for each industry.

b) Calculate the Hirfindahl Hirschman Index for each industry.

c) Are these industries equally concentrated? Explain your answer.

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Solution Preview

Monopoly and Monopolistic Competition
DQ1. There are four firms in an industry with the following market shares:

Firm 1 30%

Firm 2 25%

Firm 3 25%

Firm 4 20%

a) Calculate the Herfindahl Hirschman Index for the industry.
HHI = .3^2 + .25^2 *2 + .2^2 = 0.255

b) What is the number of effective competitors in this market? Show your calculation.
Inverting the HHI provides us with the number of competitors which are affecting the market:
1/0.255 = 3.9 or about 4 firms.

DQ 2. Suppose the demand curve for a ...

Solution Summary

Market structure and profit maximization

\$2.19