Answer:
a. 75%
b. 1,702
c. 94%; 4,334
Explanation:
a. A town has seven burger shops. The market share of these burger shops are 23%, 22%, 18%, 12%, 11%, 8%, and 6%.
The four-firm concentration of the hamburger industry can be found by calculating the market share of the top four firms.
Four firm concentration ratio
= 23% + 22% + 18% + 12%
= 75%
b. The Herfindahl index can be found by squaring the market share of each firm and then summing them up.
Herfindahl index
= 529 + 484 + 324 + 144 + 121 + 64 + 36
= 1,702
c. If the top three sellers are combined to form a single firm, there market share will be
= 23% + 22% + 18%
= 63%
The new four firm concentration will be
= 63% + 12% + 11% + 8%
= 94%
The herfindahl index will be
= 3,969 + 144 + 121 + 64 + 36
= 4,334