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Answer:
a)the largest Herfindahl index possible = 200
b)the four firm concentration ratio = 8%
Step-by-step explanation:
a) from the question, it follows that the largest share any dealer can have is 2% and the sum of all dealer shares must equal 100% of the market.
We therefore have a maximum number of firms to be 100%/2% = 50.
Since we now know that the maximum number of firms is 50,thus;
At a maximum concentration share of 2% for all firms, the largest Herfindahl index possible = number of firms x percentage squared for each firm = 50 x (2)² = 200
b) In the same logic above, the four firm concentration ratio = 4 x share of the market = 4 x 2% = 8%
