Question

13-The Herfindahl-Hirschman Index is a measure of market power that focuses on: *

A) the ratio of the price of a firm's product to the price elasticity of demand for the product.

B) the share of the market controlled by the X largest firms in the market.

C) the sum of the squares of the market share of each firm in an industry.

D) the difference between a firm's product price and its marginal costs of production.

14-Which of the following is the best example of a monopoly? *

A) Public Utilities.

B) The soap market.

C) The restaurant market.

D) The market for automobiles.

15-Because firms produce a unique product, a monopolist faces a demand curve that is: *

A) perfectly elastic.

B) perfectly inelastic.

C) downward sloping.

D) perfectly elastic or perfectly inelastic depending on whether the firm's output is a luxury or a necessity.

16-The practice of setting price by increasing the average costs of production by some percentage is referred to as *

A) average cost pricing.

B) markup pricing.

C) percentage pricing.

D) rate-of-return pricing.

Answer 1

13. Answer C

According to the Herfindahl-Hirschman index, it denotes the sum of the squares of the market share of each firm in an industry, wherein market shares are represented in fractions. The maximum number of industries is usually kept at 50 although not mandatory.

14. Answer A

Public utilities are those services and goods which are regulated by the government in most cases, thus a monopoly in simple terms. Examples of these are electricity, water, coal, etc. Rest of the options in the question are clearly having more than one major firm in their respective markets.

15. Answer D

It depends on the good. If the monopoly exists in a pharmaceutical market and the firm produces a life saving drug, then we can see the demand curve to be perfectly inelastic. On the other hand, if the monopolist firm produces an unique luxury item which costs more, then people won't be really interested in buying, hence changing the demand curve to be perfectly elastic.

16. Answer B

Markup pricing is nothing but adding a certain percentage of a markup to the cost of the product to determine the selling price of a product. In practice, this mark up is nothing but the average costs associated with the firm. Rest of the options are quite different from mark up pricing.

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