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Calculating HHI index and C4 Ratio

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An industry consists of 6 firms, with sales of \$100,000, \$500,000, \$400,000, \$300,000, 60,000, and \$75,000. Now, suppose the two smallest firms merge.

a. Calculate the four-firm concentration ratio (C4) before the merger. Show your work.
b. Calculate the four-firm concentration ratio (C4) after the merger. Show your work.
c. Calculate the Herfindahl-Hirschman index (HHI) before the merger. Show your work.
d. Calculate the Herfindahl-Hirschman index (HHI) after the merger. Show your work.
e. Do you think the U.S. Department of Justice would try to block the merger?

https://brainmass.com/economics/principles-of-mathematical-economics/calculating-hhi-index-and-c4-ratio-371685

Solution Preview

Please refer attached file for better clarity of tables.

Pre Merger

Firm Sales % Share
1 100000 6.97%
2 500000 34.84%
3 400000 27.87%
4 300000 20.91%
5 60000 4.18%
6 75000 5.23%

Total 1435000

After merger
Firm Sales % Share
1 100000 6.97%
2 500000 34.84%
3 ...

Solution Summary

Solution describes the steps to calculate HHI index and four-firm concentration ratio in the given case. It also checks whether given merger will be blocked by U.S. Department of Justice.

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