Question 1

Which market structure is characterized by a large number of firms competing by making similar but slightly different products?

Accepted Answer

A large number of firms selling different products

Question 2

Which scenario best illustrates product differentiation in monopolistic competition?

Accepted Answer

I prefer Nike shoes while my friend prefers Puma shoes.

Question 3

The Herfindahl-Hirschman Index (HHI) is calculated as the sum of the squares of the market shares of the largest firms in a market. If there are 4 firms with market shares of 40%, 30%, 20%, and 10%, what is the HHI?

Accepted Answer

$$HHI = 40^2$ + 30^2$ + 20^2$ + 10^2$ = 1600 + 900 + 400 + 100 = 3000$$

Question 4

What does the four-firm concentration ratio measure in an industry?

Accepted Answer

The percentage of total revenue accounted for by the four largest firms

Question 5

Suppose a market has 50 firms. To calculate the Herfindahl-Hirschman Index (HHI), what should you do?

Accepted Answer

Sum the squares of the market shares of the 50 largest firms

Question 6

If the four-firm concentration ratio in a market is 80%, what does this indicate about the market?

Accepted Answer

The four largest firms account for 80% of the industry's total revenue

Question 7

Which of the following best describes monopolistic competition?

Accepted Answer

A market with many firms selling similar but differentiated products

Question 8

If a market has a Herfindahl-Hirschman Index (HHI) of 10,000, what does this suggest about the market structure?

Accepted Answer

The market is a monopoly

Question 9

A market has five firms with market shares of 60%, 15%, 10%, 10%, and 5%. What is the four-firm concentration ratio?

Accepted Answer

$$60 + 15 + 10 + 10 = 95\%$$

Question 10

Which of the following is NOT an example of product differentiation?

Accepted Answer

Adidas sells jackets while DeBeers sells diamonds

Question 11

If the market shares of the four largest firms in an industry are 25%, 25%, 25%, and 25%, what is the Herfindahl-Hirschman Index (HHI)?

Accepted Answer

$$HHI = 25^2$ + 25^2$ + 25^2$ + 25^2$ = 625 + 625 + 625 + 625 = 2500$$

Question 12

Which of the following statements is true regarding the calculation of the Herfindahl-Hirschman Index (HHI)?

Accepted Answer

It is the sum of the squares of the market shares of the largest firms in the market

Question 13

A market with a four-firm concentration ratio of 30% is most likely to be:

Accepted Answer

Monopolistically competitive

Question 14

If a market has 20 firms and the market shares of the largest four firms are 10%, 10%, 10%, and 10%, what is the four-firm concentration ratio?

Accepted Answer

$$10 + 10 + 10 + 10 = 40\%$$

Question 15

Which of the following is a key feature of monopolistic competition?

Accepted Answer

Firms compete by differentiating their products

Question 16

If the Herfindahl-Hirschman Index (HHI) for a market is 2,500, what does this suggest about the level of competition?

Accepted Answer

The market is moderately concentrated

Question 17

Suppose a market has 10 firms, each with a market share of 10%. What is the Herfindahl-Hirschman Index (HHI)?

Accepted Answer

$$HHI = 10^2$ + 10^2$ + ... + 10^2$ = 10 	imes 100 = 1000$$

Question 18

Which of the following would increase the four-firm concentration ratio in a market?

Accepted Answer

The four largest firms merge and increase their combined market share

Question 19

If a market is described as having 'many firms competing by making similar but slightly different products,' which market structure does this best describe?

Accepted Answer

Monopolistic competition

Question 20

Which of the following is most likely to be true in a monopolistically competitive market?

Accepted Answer

Firms sell differentiated products and have some control over price

Monopolistic Competition and Market Structure: Key Terms and Concepts

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