# Herfindahl-Hirschman Index Assignment Help With Solution

## Herfindahl-Hirschman Index Assignment Help

1.In the 1980s, PepsiCo Inc., which then had 28 percent of the soft-drink market, proposed to acquire the Seven-Up Company. Shortly thereafter the Coca-Cola Company, with 39 percent of the market, indicated it wanted to acquire the Dr Pepper Company. Seven-Up and Dr Pepper each controlled about 7 percent of the market. In your judgment, was the government’s decision to block these mergers appropriate?

2.Ten firms compete in a market to sell product X. The total sales of all firms selling the product are \$1,000,000. Ranking the firms’ sales from highest to lowest, we find the top four firms’ sales to be \$160,000, \$105,000, \$95,000, and \$80,000, respectively. Calculate the four-firm concentration ratio in the market for product X.

3.An industry consists of three firms with sales of \$205,000, \$745,000, and \$305,000.

a. Calculate the Herfindahl-Hirschman index (HHI).

b.Calculate the four-firm concentration ratio (C4).

c.c. Based on the FTC and DOJ Horizontal Merger Guidelines described in the text, is the Department of Justice likely to attempt to block a horizontal merger between two firms with sales of \$205,000 and \$305,000?
Yes or No?

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4.A firm has \$1,700,000 in sales, a Lerner index of 0.68, and a marginal cost of \$55, and competes against 900 other firms in its relevant market.

a. What price does this firm charge its customers?

b. By what factor does this firm mark up its price over marginal cost?

5.You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales (\$125 million last year) and a low marginal cost of producing the product (\$0.45 per pill), your company has yet to show a profit from selling the drug. This is, in part, due to the fact that the company spent \$1.5 billion developing the drug and obtaining FDA approval. An economist has estimated that, at the current price of \$1.60 per pill, the own price elasticity of demand for the drug is -3.

Based on this information, what can you do to boost profits?
Choose One:
a)Raise price.
b)Reduce price.
c)Keep price the same.

6.The elasticity of demand for a firm’s product is -4 and its advertising elasticity of demand is 0.12.

a. Determine the firm’s optimal advertising-to-sales ratio.

b.If the firm’s revenues are \$70,000, what is its profit-maximizing level of advertising?

7.The four-firm concentration ratios for industries X and Y are 71 percent and 81 percent, respectively, while the corresponding Herfindahl-Hirschman indexes are 2,100 and 3,200. The Dansby-Willig performance index for industry X is 0.74, while that for industry Y is 0.58. Based on this information, which would lead to the greatest increase in social welfare: A slight increase in industry X’s output, or a slight increase in industry Y’s output?
Choose One:
a)A slight increase in industry X’s output.
b)A slight increase in industry Y’s output.

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