Chapter 7 Homework Assignments
Q12 Forey, Inc., competes against many other firms in a highly competitive
indus- try. Over the last decade, several firms have entered this industry
and, as a consequence, Forey is earning a return on investment that
roughly equals the interest rate. Furthermore, the four-firm
concentration ratio and the Herfindahl- Hirschman index are both quite
small, but the Rothschild index is signifi- cantly greater than zero. Based
on this information, which market structure best characterizes the
industry in which Forey competes? Explain. Q13 Firms like Papa John’s, Domino’s, and Pizza Hut sell pizza and other
products that are differentiated in nature. While numerous pizza chains
exist in most locations, the differentiated nature of these firms’ products
permits them to charge prices above marginal cost. Given these
observations, is the pizza
industry most likely a monopoly, perfectly competitive, monopolistically
com- petitive, or an oligopoly industry? Use the causal view of structure,
conduct, and performance to explain the role of differentiation in the
market for pizza. Then apply the feedback critique to the role of
differentiation in the industry. Q15 Nationwide Bank has approached Hometown Bank with a proposal to
merge.
The following table lists the sales of the banks in the area. Use this
information to calculate the four-firm concentration ratio and the
Herfindahl-Hirschman index. Based on the FTC and DOJ Horizontal
Merger Guidelines, do you think the Justice Department is likely to
challenge the proposed merger?
Sales Bank Name (in millions)
MegaBank $1,100 City Bank 950 Nationwide Bank 845 Atlantic Savings
785 Bulk Bank 665 Metropolitan Bank 480 American Bank 310
Hometown Bank 260 Urban Bank 140 Q17 em- bles perfect competition? Which industry most closely resembles monopoly? You will need to re-enter the data on the table above into cells before calculating. Agriculture
Construction
Durable manufacturing
Nondurable manufacturing
Transportation
Communication and utilities
Wholesale trade
Retail trade
Finance
Services Own Price Elasticity of
Market Demand
-1.8
-1.0
-1.4
-1.3
-1.0
-1.2
-1.5
-1.2
-0.1
-1.2 Own Price Elasticity
of Demand for
Representative Firm's
Product
Rothschild Index
-96.2
0.019
-5.2
0.192
-3.5
0.400
-3.4
0.382
-1.9
0.526
-1.8
0.667
-1.6
0.938
-1.8
0.667
-5.5
0.018
-26.4
0.045

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