Third Homework Assignment Economics 120Fall 2015

Market shares in the U.S. automobile industry are as follows. Company Market Share (Percent) GM 20 Ford 15 Toyota 15 Chrysler 12 Honda 10 Nissan 10 Hyundai 8 Kia 5 Subaru 5 I. Measures of Market Structure for Automobile Industry 1.Define and compute the four-firm concentration ratio for this industry.Show your computation. 2. Define and compute the Herfindahl-Hirschman index (HHI) for this industry. Show your computation. 3. According to the U.S. government, what is the classification of the automobile industry in terms of “concentration” or “market power”?Explain your answer. II. Advantages and Disadvantages of Measures of Market Structure 4.The four largest firms in industry A have market shares 15, 15, 15, 15; whereas the four largest firms in industry B have market shares 50, 8, 1, 1. In each industry, the remaining firms are many and each have insignificant market share. The four-firm concentration ratio is the same in both industries, but the HHI differs. How does this example illustrate the principal advantage of the HHI compared to the four-firm concentration ratio? 5. What is a principal disadvantage of both the four-firm concentration ratio and the HHI as a measure of market structure?