CFA Practice Question
There are seven companies in an industry with the following market shares: 30%, 40%, 10%, 6%, 5%, 5%, and 4%. This industry structure is equivalent to a same-size competitive structure with ______.
A. 2 firms
B. 3 firms
C. 3.7 firms
Explanation: We compute the Herfindahl concentration ratio: H = (0.302) + (0.402) + (0.102) + (0.062) + (0.052) + (0.052) + (0.042) = 0.2702 => 1 / H = 1 / 0.2702 => H = 3.7 firms.
User Contributed Comments 3
| User | Comment |
|---|---|
| czar | These are not in scope for this year's exam study guide or am i missing something? |
| indrayudha | It's discussed in Monopoly chapter. |
| farhan92 | i didnt use the method above so my answer was a calculated guess... but using the market shares given can you make 100 percent shared between 2 firms (i.e can you make 2 lots of 50 -nope!) can you make 3 (nope) the answer is 3 and a little left over -probably a little more time consuming but when the clock is ticking the Herfindahl formula doesn't come to mind! |