Firms AFD, TYU, CHG, and LAN are competitors within an industry. Their respective sales figures are $2.7 billion, $3.7 billion, $4.7 billion, and $2.1 billion. (Note: The HHI is measured in units of %2. For example, 50% x 50% = 2,500%2 (or, in decimal form, 0.50 x 0.50 = 0.25). To make the conversion from decimal to percentage form mathematically, multiply the answer by 10,000; using the same example, this yields 0.50 x 0.50 x 10,000 = 2,500.)
1. What is the Herfindahl-Hirschman Index (HHI) for the industry? Round your answer to two decimal places.
2. Is the industry considered highly concentrated, moderately concentrated, or not concentrated?
3. Assuming that two more firms - QBC ($3.6 billion in sales) and RTY ($2.8 billion in sales) - are added to the industry figures, does the concentration level of the industry change? (Recompute HHI to determine this.)
4. If the three smallest firms (AFD, LAN, and RTY) merged, would the FTC be concerned? (Note: The HHI is measured in units of %2. For example, 50% x 50% = 2,500%2 (or, in decimal form, 0.50 x 0.50 = 0.25). To make the conversion from decimal to percentage form mathematically, multiply the answer by 10,000; using the same example, this yields 0.50 x 0.50 x 10,000 = 2,500.) Yes or no?