ch 7:

Question 1

refers to factors such as the number of firms that compete in a market, the relative size of the firms (concentration), technological and cost conditions, demand conditions, and the ease with which firms can enter or exit the industry.

Answer 1

MARKET STRUCTURE

Question 2

MARKET STRUCTURE

Answer 2

Firm Size
Industry Concentration
Technology
Demand and Market Conditions
Potential for Entry
Pricing Behavior

Question 3

measure how much of the total output in an industry is produced by the largest firms in that industry.

Answer 3

Concentration ratios

Question 4

The most common concentration ratio is

Answer 4

the four-firm concentration ratio (C4).

Question 5

is the fraction of total industry sales produced by the four largest firms in the industry.

Answer 5

The four-firm concentration ratio

Question 6

Another measure of concentration is the sum of the squared market shares of firms in a given industry, multiplied by 10,000 to eliminate the need for decimals. By squaring the market shares before adding them up, the index weights firms with high market shares more heavily.

Answer 6

The Herfindahl-Hirschman index (HHI)

Question 7

One measure of the elasticity of industry demand for a product relative to that of an individual firm is the

Answer 7

Rothschild index.

Question 8

provides a measure of the sensitivity to price of the product group as a whole relative to the sensitivity of the quantity demanded of a single firm to a change in its price.

Answer 8

The Rothschild index

Question 9

refers to uniting productive resources. can occur through a merger, in which two or more existing firms “unite,” or merge, into a single firm.

Answer 9

Integration

Question 10

can result from an attempt by firms to reduce transaction costs, reap the benefits of economies of scale and scope, increase market power, or gain better access to capital mar- kets.

Answer 10

Mergers

Question 11

Economists distinguish among three types of integration, or mergers:

Answer 11

vertical, horizontal,
and conglomerate.

Question 12

refers to a situation where various stages in the production of a single product are carried out in a single firm. For instance, an automobile manufacturer that pro- duces its own steel, uses the steel to make car bodies and engines, and finally sells an automo- bile

Answer 12

Vertical integration

Question 13

is the integration of two or more firms that produce components for a single product. We learned in Chapter 6 that firms do this to reduce the transaction costs associ- ated with acquiring inputs.

Answer 13

A vertical merger

Question 14

refers to the merging of the production of similar products into a single firm. For example, if two computer firms merged into a single firm, this involves merging two or more final products into a single firm,

Answer 14

Horizontal Integration

Question 15

involves merging two or more phases of production into a single firm.

Answer 15

vertical integration

Question 16

by its very definition, reduces the number of firms that compete in the product market. This tends to increase both the four-firm concentration ratio and the Herfindahl-Hirschman index for the industry, which reflects an increase in the mar- ket power of firms in the industry.

Answer 16

Horizontal Integration

Question 17

involves the integration of different product lines into a single firm. For example, if a cigarette maker and a cookie manufacturer merged into a single firm, a conglomerate merger would result. is similar to a horizontal merger in that it involves merging final products into a single firm. It differs from a horizontal merger because the final products are not related.

Answer 17

Conglomerate Mergers