Statistic Problems
For this problem use the Herfindahl Index to compute market concentration:
- Suppose Apple has 45% of the U.S. market share for smartphones, followed by Samsung with 30%, LG with 9%, Motorola with 8%, HTC with 6%, and Nokia with 2%. What is the Herfindahl Index for the smartphone industry based on these numbers? Based on the Herfindahl Index, do you think the government would be willing to approve a merger between Apple and Samsung?
- Now suppose Nokia and Motorola come out with a new smartphone that takes away a huge chunk of market share from Apple and Samsung. The new market shares are 25% for Apple, 20% for Samsung, 20% for Motorola, 20% for Nokia, 10% for LG, and 5% for HTC.
Use what you learned about perfect competition, monopoly, and oligopoly to answer these questions:
- In the table below is the quantity produced, the price, the fixed costs, and variable costs for a perfectly competitive firm that faces a constant price of $150 for its product regardless of the quantity it sells.
- Use the information in the first four columns to calculate the number for the last four columns. At what quantity should they produce based on what you find with your results?
- How do you think your answer might change if it became a monopolist with all of its competitors leaving the market? Or if it became an oligopoly with only one or two competitors?