Question

A market is considered unconcentrated if the? Herfindahl-Hirschman Index? (HHI) is below 1000 ?(enter your response as an ?integer)?; it is considered highly concentrated if the? Herfindahl-Hirschman Index? (HHI) is above 1800. its this correct?

Answer 1

Whether a market is oligopoly or not we determine the concentration ratio. However both the Justice department and the FTC both prefer to measure called the Herfindahl-Hirshman Index (HHI).The HHI is measured by taking the square for each firm’s share of market sales summed over the firms in the industry. A HHI below 1000 is very competitive, HHI between 1000 and 1800 are somewhat competitive and HHI above 1800 is called oligopoly.

The perfect competitive firm operates in most competitive environment. The perfect competition is characterized by many firms producing homogeneous product at a price that is determined through the interaction between demand and supply in the market. As there are numerous firms operating in the market, changes in the production decision of any single firm have little or no effect on market prices. The firms are also free to enter and exit the market.

Thus, if there is10 firms having 10% market share each is a perfectly competitve industry. HHI for 10 firms each have 10% of the market is.

HHI for 4 firms each have 25% of the market is. Thus the industry is oligopoly.

In an economy when a relatively few firms control all or most of the production and sales of a product, the market is characterized as Oligopoly.

A monopoly is a firm with sufficient market power that it can raise the price of the good above marginal cost and enjoys super normal profit; without fearing that other firm will enter into the market. To maximize profit a firm should produce until marginal revenue equals marginal cost. HHI for 1 firm has 100% of the market is.

Therefore, the statement is