Question 1: An industry consists of 6 firms, with sales of $500,000, $400,000, $300,000, $150,000, 75,000, and $60,000. Now, suppose the largest and smallest firms merge.
a. Calculate the Herfindahl-Hirschman index (HHI) before the merger. Show your work.
b. Calculate the Herfindahl-Hirschman index (HHI) after the merger. Show your work.
c. Calculate the four-firm concentration ratio (C4) before the merger. Show your work and round your answer to 4 decimal places.
d. Calculate the four-firm concentration ratio (C4) after the merger. Show your work and round your answer to 4 decimal places.
e. Do you think the U.S. Department of Justice would try to block the merger? Explain.
Question 2: Meyer Inc. operates in a highly competitive industry and competes against many other firms. In the past few years, many new firms have entered the industry and Meyer now earns a return on investment very close to the prevailing interest rate. The four-firm concentration rate and the Herfindahl-Hirschman index are both low, but the Rothschild index is well above zero. What market structure best characterizes the described industry? Explain your answer.
Question 3: Aiden Manufacturing has a slightly unique product that sells for $30 per unit, and the marginal cost is $28. Determine the Lerner index for Aiden Manufacturing. Does this index indicate market power? Explain your answer and show your work.
Question 4: Determine whether integration between the following types of firms would constitute a horizontal, vertical, or conglomerate merger. Explain your answers.
a. A dairy farmers cooperative buys a dairy.
b. A motorboat manufacturer merges with a marine battery producer.
c. H&R Block merges with Blockbuster.