question archive In a contestable market, the Herfindahl-Hirschman Index is A
In a contestable market, the Herfindahl-Hirschman Index is A
Subject:MarketingPrice:2.88 Bought3
In a contestable market, the Herfindahl-Hirschman Index is
A. high but the market behaves as if it is perfectly competitive.
B. high and the market behaves as if it is a monopoly.
C. low but the market behaves as if it is a monopoly.
D. low and the market behaves as if it is perfectly competitive.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
- The correct answer is D. low and the market behaves as if it is perfectly competitive.
The Herfindahl-Hirschman Index (HHI) is a tool to measure the concentration in a market. Based on this index, markets that are very concentrated will have a high coefficient (10,000 for a pure monopoly) and markets that are very competitive will have a low coefficient (0 for an infinite number of firms). Note that constable markets are composed of many firms since the barriers to entry are low which is very similar to perfect competition. Therefore, the correct answer is option D.
Options A. and B. are incorrect because the higher the HHI index, the lower the competition. Option C. is also incorrect because a contestable market does not behave as a monopoly due to a large number of firms.
