In the small town of Geneva, there are 5 firms that make watches. The firms’ res
ID: 3226876 • Letter: I
Question
In the small town of Geneva, there are 5 firms that make watches. The firms’ respective output levels are 23 watches per year, 20 watches per year, 20 watches per year, 20 watches per year, and 17 watches per year. The four-firm concentration ratio for the town’s watch-making industry is _____.
There are 10 000 firms in an industry, and each firm has a market share of 0.01 percent. The industry’s Herfindahl index is ____.
Assume that the allocatively efficient output level in long-run equilibrium is 220 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. What is the size of the firm’s profit?
Explanation / Answer
1] In the small town of Geneva, there are 5 firms that make watches. The firms’ respective output levels are 23 watches per year, 20 watches per year, 20 watches per year, 20 watches per year, and 17 watches per year. The four-firm concentration ratio for the town’s watch-making industry is _____.
Ans : 23+20+20+20 =83
2] There are 10 000 firms in an industry, and each firm has a market share of 0.01 percent. The industry’s Herfindahl index is ____.
Ans : 0.01 % = 10%
( 10000)^2 *10 = 1,00,00,00,000
3] Assume that the allocatively efficient output level in long-run equilibrium is 220 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. What is the size of the firm’s profit?
Ans
In long run equilibrium, the firm earns zero economic profit, because P = ATC.