Exam 7: The Nature of Industry

Firms like McDonald's and Wendy's sell hamburgers, salads, and other products that are differentiated in nature. While numerous fast-food restaurants exist in most locations, the differentiated nature of the firms' products permits them to charge prices that are in excess of marginal cost. Given these observations, is the fast-food industry most likely a perfectly competitive industry, a monopoly, monopolistically competitive, or an oligopoly? Use the causal view of structure, conduct, and performance to explain the roles of product differentiation in the industry, and explain how the feedback critique applies in this context.

Suppose that there are two industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are four firms in industry B with equal sales of $2.5 million for each firm. The HHI for industry B is:

There are five firms in an industry. You know sales of the four largest firms are $1,000,000, $500,000, $400,000, and $178,000. If the C₄ ratio is 95 percent, then the HHI is:

According to the "feedback critique":

Consider a market characterized by two firms that set the same price in the market, P = $10. Total market demand is Q_T = 100 - 2P, of which the two firms share equally. Based on this information, we can conclude:

Which of the following may transform an industry from oligopoly to monopolistic competition?

The Beta Corporation operates in an industry that has a Herfindahl-Hirschman index of 2,800. Beta wants to merge with Alpha Enterprises, but Alpha has argued that the merger will be blocked by the Justice Department. Are there conditions under which the Justice Department would allow the merger? Explain.

Determine whether integration between the following types of firms would constitute a horizontal, vertical, or conglomerate merger. a. A food company and a drug company. b. A milk producer and a cheese producer. c. A computer chip manufacturer and a silicon producer.

Which of the following is NOT one class of a market structure?

An electronics company purchases a food company. This is an example of:

Suppose the market for good X has a four-firm concentration ratio of 0.50. Furthermore, assume that total sales in the industry are $1.2 million. Based on this information, we know that sales for the largest four firms in the industry equal (in aggregate):

The ranking of industries by the four-firm concentration ratio usually, but not always, reveals the same pattern as ranking by HHI. When a discrepancy is found it is usually due to the following:

There are five firms in an industry. You know sales of the four largest firms are $800,000, $700,000, $440,000, and $230,000. If the C₄ ratio is 80 percent, then the HHI is:

It is sometimes said that a manager of a monopoly can charge any price and customers will still have to buy the product. Do you agree or disagree? Why?

An electronics company takes over one of its original suppliers in a merger. This is an example of:

Suppose that the demand in a particular industry is given by Q^d = 100 - 2P. When the market price in the industry is $10 per unit, total demand in the industry is ___. Furthermore, assume that each of the four largest firms in the industry sell 15 units. Based on this information, the four-firm concentration ratio is ____.

A frozen food company buys a fresh food company. This takeover is an example of:

Star Computer and a small telecommunications company are considering a merger. A socially minded member of Star Computer's board of directors is against the merger, however, because she is concerned that the merger might not benefit society as a whole. Provide the board member with an argument for why it may be socially beneficial for the merger to take place.

Conglomerate integration:

In the 1960s, each firm in the computer industry was able to make extremely large profit margins, some as high as 50 to 60 percent. The margin decreased to 20 to 40 percent in the 1970s and to 10 to 20 percent in the 1980s. We conclude that: