1. The Herfindahl-Hirschman (HH) Index is used to
a) measure the degree of market concentration in an industry.
b) measure the extent of price leadership.
c) measure the degree of nonprice competition.
d) None of the above.

2. Which of the following conditions would definitely cause a perfectly competitive company to shut down in the short run?
a) P = MR
b) P = MC < AC
c) P < MC
d) P < AVC

3. At the point at which P=MC, suppose that a perfectly competitive firm's MC=$100, its AVC =$80 and its AC= $110. This firm should
a) Try to increase its adverstising and promotion.
b) shut down immediately.
c) try to take advantage of economies of scale.
d) continue operating in the short run.

4. A feature of Perfect Competition is
a) unique products.
b) use of nonprice competition by firms.
c) standardized products.
d) mutual interdependence among firms.

Solution Preview

Hello!
Here are your answers.

1. Answer is A
No steps needed here, the purpose of the HH index is to measure market concentration.

2. Answer is D
A firm should continue operating in the short run as long as ...

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