36) There are 6 firms in a market and the market shares of the firms are 40 percent, 30 percent,
10 percent, 8 percent, 7 percent, and 5 percent. The four-firm concentration ratio is equal to
A) 2738.
B) 2664.
C) 100.
D) 88.
Widgets Gadgets Blodgets
Firm
Sales
Firm
Sales
Firm
Sales
Will’s
300
Gail’s
400
Bill’s
200
Wendy’s
250
Gary’s
300
Brenda’s
150
Wallace’s
200
Gina’s
200
Boyd’s
150
Willima’s
150
George’s
100
Bertha’s
100
Other 100
firms
900
Other 100
firms
1500
Other 100
firms
400
37) In the above table, what is the four-firm concentration ratio for the Gadgets industry?
A) 25 percent
B) 40 percent
C) 250 percent
D) 1,000 percent
38) In the above table, based on the four-firm concentration ratio, which industry is the most
concentrated?
A) Widgets
B) Gadgets
C) Blodgets
D) All three industries are equally concentrated.
Firm
Market share
(percentage of sales)
Susan’s Stitches
40
Tommy’s Threads
25
Robert’s
Wardrobe
10
Katie’s Klothes
10
Greg’s Garments
10
Amy’s Attire
5
39) The table above gives the market share of sales of firms in the retail clothing market. What is
the four-firm concentration ratio?
A) 70 percent
B) 100 percent
C) 85 percent
D) 65 percent
40) If an industry were perfectly competitive, the four-firm concentration ratio would be close to
________ and the Herfindahl-Hirschman index would be close to ________.
A) 0; 0
B) 0; 100
C) 100; 0.
D) 100; 100.
41) Which of the following statements about the Herfindahl-Hirschman Index is CORRECT?
I. It is the square of the percentage market share of each firm summed over the largest 50 firms
(or summed over all the firms if there are fewer than 50) in a market.
II. A small index is indicative of a high degree of competition.
III. The index is used to measure the degree of competition.
A) I only
B) I, II only
C) I, III only
D) I, II, and III
42) The ________ the Herfindahl-Hirschman Index (HHI), the ________ the industry.
A) higher; less competitive
B) lower; less competitive
C) higher; more firms in
D) lower; more profitable
43) The Herfindahl-Hirschman Index measures an industry’s concentration of
A) employment.
B) sales.
C) profits.
D) productive capital.
44) If an industry’s Herfindahl-Hirschman Index is less than 1, the industry is likely to be
A) competitive.
B) an oligopoly.
C) a monopoly.
D) technologically inefficient.
45) The Herfindahl-Hirschman Index is definitely larger in a ________ market than in a
________ market.
A) monopoly; perfectly competitive
B) monopolistic competitive; monopoly
C) perfectly competitive; monopoly
D) perfectly competitive; monopolistic competitive
46) Which of the following indicates a high degree of competition?
A) A HHI that is between 1,800 and 2,800.
B) A HHI that exceeds 2,800.
C) A concentration ratio that is less than 40 percent.
D) A concentration ratio that is greater than 60 percent.
47) If more firms enter a market that initially had 20 firms in it, then the Herfindahl-Hirschman
Index will ________.
A) increase
B) decrease
C) not change
D) change in an unpredictable direction
48) The minimum value of the Herfindahl-Hirschman Index is
A) -100.
B) -1.
C) approximately 0.
D) 1.
49) The maximum value that the Herfindahl-Hirschman Index can attain is
A) 1.
B) 10.
C) 100.
D) 10,000.
50) The Herfindahl-Hirschman Index for a monopoly is
A) 1.
B) 100.
C) 10,000.
D) undefined.
51) If a market is shared equally by four firms, the Herfindahl-Hirschman Index is
A) 1/4.
B) 4.
C) 25.
D) 2,500.
52) If a market is shared equally by 100 firms, the Herfindahl-Hirschman Index is
A) 1/100.
B) 1/50.
C) 50.
D) 100.
53) In an oligopoly with two firms, one firm’s share of the market is 70 percent. The Herfindahl-
Hirschman Index is ________.
A) 4,900
B) 0.7
C) 5,800
D) 100
54) If a market is shared equally by 200 firms the Herfindahl-Hirschman Index is
A) 12.5.
B) 25.
C) 50.
D) 200.
55) Suppose there are five firms in the disposable diaper market. Hug-Me’s share is 30 percent.
Plumper’s share is 30 percent. Drippy’s share is 20 percent. Kool Kid’s share is 10 percent.
Nappomatic’s share is 10 percent. The Herfindahl-Hirschman Index in this industry is
A) 100.
B) 900.
C) 1,350.
D) 2,400.
56) There are six firms in an industry, with market shares of 50 percent, 25 percent, 10 percent,
10 percent, 3 percent and 2 percent. The four firm concentration ratio is ________, and the HHI
is ________.
A) 100; 100
B) 95; 3338
C) 95; 10,000
D) 100; 3338
57) Suppose that there are 10 firms in an industry, each accounting for 10 percent of industry
sales. Two of these firms decide to merge. Which of the following statements about the impact of
this merger is (are) INCORRECT?
A) The merger causes the four-firm concentration ratio to increase from 40 to 50.
B) The merger causes the HHI to increase by 100.
C) The merger will not change the HHI unless the industry’s sales increase.
D) Both answers A and C are incorrect.
58) If there are five firms in an industry, each with a market share of 20 percent, the Herfindahl-
Hirschman Index (HHI) of concentration is
A) 2000.
B) 400.
C) 100.
D) 20.
59) There are 6 firms in a market and the market shares of the firms are 40 percent, 30 percent,
10 percent, 8 percent, 7 percent, and 5 percent. The Herfindahl-Hirschman index is
A) 2738.
B) 2664.
C) 100.
D) 88.
60) The cookie industry in Eatsweetland consists of 15 firms. The industry sales are $80 million
per month. The sales of the largest 5 firms are shown in the table below. The rest 10 firms have
sales of $3 million each. What is the four-firm concentration ratio in Eatsweetland’s cookie
industry?
A) 63 percent
B) 44 percent
C) 87 percent
D) 56 percent
61) The cookie industry in Eatsweetland consists of 15 firms. The industry sales are $80 million
per month. The sales of the largest 5 firms are shown in the table below. The rest 10 firms have
sales of $3 million each. What is the Herfindahl-Hirschman index in the market for cookies in
Eatsweetland?
A) 1013
B) 2278
C) 872
D) 2632
62) The cookie industry in Eatsweetland consists of 15 firms. The industry sales are $80 million
per month. The sales of the largest 5 firms are shown in the table below. The rest 10 firms have
sales of $3 million each. Which of the following best describes the structure of the market for
cookies in Eatsweetland?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
63) The cookie industry in Eatsweetland consists of 15 firms. The industry sales are $80 million
per month. The sales of the largest 5 firms are shown in the table below. The rest 10 firms have
sales of $3 million each. The U.S. Department of Justice would classify the market for cookies in
Eatsweetland as
A) competitive.
B) uncompetitive.
C) moderately competitive.
D) monopolistic.
Company
Sales
(millions of
dollars)
A
100
B
100
C
100
D
100
E
100
F
100
G
100
H
100
I
100
J
100
K
100
L
100
M
100
N
100
O
100
P
100
Q
100
R
100
S
100
T
100
64) The table above lists the market shares of the twenty makers of personal computers. The
four-firm concentration equals
A) 5 percent.
B) 20 percent.
C) 25 percent.
D) 100 percent.
65) The table above lists the market shares of the twenty makers of personal computers. The
four-firm concentration ratio tells us that
A) the four largest firms have 20 percent of the market.
B) there are no barriers to entry in this market.
C) the firms sell differentiated products.
D) all firms sell identical products.
66) The table above lists the market shares of the twenty makers of personal computers. The
Herfindahl-Hirschman Index for this industry equals
A) 5.
B) 250.
C) 1250.
D) 500.
67) The table above lists the market shares of the twenty makers of personal computers. Based
upon the Herfindahl-Hirschman Index
A) the industry is an oligopoly.
B) the industry is a monopoly.
C) the industry is competitive.
D) the firms in the industry will not be allowed to merge.
68) The table above lists the market shares of the twenty makers of personal computers. Based
upon the Herfindahl-Hirschman Index for this industry, the Justice Department would
A) regard the industry as highly concentrated.
B) be against any two firms merging.
C) consider the market oligopolistic.
D) regard the industry as competitive.
Firm
Sales
(millions of
dollars)
ABC
50
DEF
60
GHI
80
JKL
100
MNO
130
PQR
150
STU
170
69) Based on the above table, which shows the firms and sales in an industry, what is the four-
firm concentration ratio?
A) 55
B) 74
C) 100
D) $740 million
70) Based on the above table, which shows the firms and sales in an industry, what is the
approximate value of the Herfindahl-Hirschman Index?
A) 1,660
B) 2,300
C) 4,800
D) 10,000
Company
Sales
(millions of
dollars)
A
120
B
89
C
531
D
452
E
269
F
125
G
25
H
89
I
155
J
69
K
85
71) The table above shows sales of the firms in the pet food industry. The four-firm
concentration ratio in the industry is
A) 59 percent.
B) 80 percent.
C) 70 percent.
D) 40 percent.
72) The table above shows sales of the firms in the pet food industry. The Herfindahl-Hirschman
Index in the industry is
A) 1260.
B) 1443.
C) 1100.
D) 1588.
73) The table above shows sales of the firms in the pet food industry. What type of market is
this?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
Company
Sales
(millions of
dollars)
A
130
B
95
C
456
D
352
E
312
F
100
G
53
H
78
I
142
J
186
K
95
74) The table above shows sales of the firms in the chocolate industry. The four-firm
concentration ratio in the industry is
A) 52 percent.
B) 65 percent.
C) 72 percent.
D) 80 percent.
75) The table above shows sales of the firms in the chocolate industry. The Herfindahl-
Hirschman Index in the industry is
A) 1346.
B) 896.
C) 1160.
D) 2588.
76) The table above shows sales of the firms in the chocolate industry. What type of market is
this?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
Company
Sales
(thousands of
dollars)
A
750
B
500
C
250
D
125
E
125
F
125
G
125
H
125
I
125
J
125
K
125
77) The above table shows the market shares for all the landscaping services in a suburban area.
The four-firm concentration ratio equals
A) 30 percent.
B) 60 percent.
C) 65 percent.
D) 100 percent.
78) The above table shows the market shares for all the landscaping services in a suburban area.
Which of the following mergers would cause the greatest increase in the four-firm concentration
ratio?
A) A and B
B) D and E
C) E and F
D) six of the smallest firms
79) The above table shows the market shares for all the landscaping services in a suburban area.
A merger between firms E and F would
A) raise the four-firm concentration ratio.
B) have no effect on the four-firm concentration ratio.
C) lower the four-firm concentration ratio.
D) create a monopoly.
80) The above table shows the market shares for all the landscaping services in a suburban area.
A merger between the three largest firms would
A) make the industry more competitive.
B) increase the four-firm concentration ratio and increase the Herfindahl-Hirschman Index
(HHI).
C) increase the four-firm concentration ratio and decrease the Herfindahl-Hirschman Index
(HHI).
D) decrease the four-firm concentration ratio and decrease the Herfindahl-Hirschman Index
(HHI).
81) The above table shows the market shares for all the landscaping services in a suburban area.
The Herfindahl-Hirschman Index (HHI) equals
A) 65.
B) 900.
C) 1400.
D) 1600.
82) High concentration measures will understate the extent of competition in a market if
A) the true geographical scope of the market is global rather than national.
B) entry into the industry is easy.
C) the geographical scope of the market is regional rather than national.
D) Both answers A and B are correct.
83) Which of the following factors helps explain limitations of concentration measures?
A) data collection challenges
B) failure of the market and industry to correspond
C) poor public information about firms
D) lack of staff to perform professional market research
84) Concentration ratios are generally computed for ________ markets.
A) local
B) regional
C) national
D) global
85) The national concentration ratio
A) underestimates concentration for both the newspaper and the automobile industries.
B) overestimates concentration for both the newspaper and the automobile industries.
C) underestimates concentration for the newspaper industry and overestimates it for the
automobile industry.
D) overestimates concentration for the newspaper industry and underestimates it for the
automobile industry.
86) Even though the market for bricks has a low concentration ratio nationally, the U.S. Justice
Department might still scrutinize any mergers in this industry because the
A) HHI is high nationally.
B) HHI is above 1800 nationally.
C) HHI is below 1800 nationally.
D) market is regional not national, and the regional concentration might be high.
87) On a national level, the concentration ratio for grocery stores is very low. But, the “true”
market for grocery stores is local in nature. What limitation does the geographic market put on
the measure of concentration for grocery stores?
A) On the local level, grocery stores are more concentrated than they appear on the national
level.
B) On the local level, grocery stores are not as concentrated as they appear on the national level.
C) The level of concentration is overestimated when viewing the national level.
D) Both answers A and C are correct.
88) An industry with a high concentration ratio might still be competitive if
A) there are no close substitutes for its product.
B) its barriers to entry are low.
C) its production is geographically concentrated.
D) it has a high ratio of value added to sales.
89) The largest share of the U.S. private economy is
A) in manufacturing.
B) competitive or monopolistically competitive.
C) oligopolistic.
D) monopolistic.
90) Over the years, the U.S. economy has become increasingly
A) monopolistic.
B) oligopolistic.
C) competitive.
D) cartelized.
91) During the twentieth century, the market structure of the U.S. economy has
A) become less competitive.
B) remained about the same.
C) become more competitive.
D) become mostly monopolies.
1) Which of the following can lead to a firm being more efficient that a market? A firm can have
I. economies of scale.
II. economies of scope.
III. lower transactions costs.
A) III only
B) I and II
C) II and III
D) I, II and III
2) Which of the following is a reason why firms may be more efficient than markets as
coordinators of economic activity?
A) economies of scale and scope
B) lower transactions costs
C) economies of team production
D) all of the above
3) Which of the following is a reason why firms can be more efficient than markets as
coordinators of economic activity?
A) economies of scale and scope
B) higher transactions charges
C) elimination of the principal-agent problem
D) all of the above
4) Dell uses outsourcing, that is, Dell buys the components of the computers it produces from
other firms. This is an example of
A) firm coordination.
B) a partnership.
C) a command system.
D) market coordination.
5) Which of the following is NOT an advantage of firm coordination of economic activity?
A) Firm coordination decreases transactions costs.
B) When firms coordinate economic activity, there are no opportunity costs.
C) Firms can take advantage of the economies of team production.
D) Economies of scope can be realized by firms that produce a range of goods and services that
share specialized resources.
6) Costs to the firm arising from reaching agreements on input prices with suppliers and then
ensuring that terms of agreements are fulfilled, are called
A) negotiation costs.
B) agency costs.
C) transactions costs.
D) implicit costs.
7) One reason why firms replace markets for some activities is that firms
A) reduce the number of transactions required.
B) enable individuals to avoid a large portion of their taxes.
C) reduce the rate at which the product is wasted.
D) do not require team production.
8) Firms are often more efficient than markets as coordinators of economic activity because
A) firms can achieve lower transaction costs.
B) markets cannot coordinate production.
C) firms don’t rely on economies of scale while markets do.
D) firm coordination is always more economically efficient than market coordination.
9) According to Nobel laureate Ronald Coase, firms exist in order to
A) maximize transactions costs.
B) minimize transactions costs.
C) maximize transactions.
D) employ workers.
10) A key reason for the existence of firms is that, compared to markets, firms often achieve
lower
A) explicit costs.
B) transactions costs.
C) accounting costs.
D) scope of team production.