Topic 4

Question 1

What determines the number of rivals in a market?

Answer 1

The minimum efficient scale of operations (MES)

Question 2

What can happen to MES with technological change?

Answer 2

It can increase, decreasing the number of firms in the market

Question 3

Concentration Ratio (CR)

Answer 3

For the Concentration Ratio, rank firms by market share in descending order: the m firm concentration ratio is the sum of the market share of the largest m firms.

• The CR4 index for a market with four large sellers.

Question 4

Herfindahl-Hirschman Index (HHI)

Answer 4

HHI is the sum of squares of market shares

• N is the number of firms in the market
• Decreases in the Herfindahl index generally indicate a loss of market power and an increase in competition, whereas increases imply the opposite.

Question 5

Compare indexes with market structures

Answer 5

Question 6

Risk, Uncertainty Table

Answer 6