Economics 320: Industrial Organization and Pricing
Problem Set #6
Due 4/1/97
1. Find the 4-firm concentration ratio and the total industry
HHI for the following three industries.
| MARKET SHARE | Industry 1 | Industry 2 | Industry 3 |
| Firm 1 | 40 | 40 | 20 |
| Firm 2 | 15 | 30 | 15 |
| Firm 3 | 10 | 15 | 15 |
| Firm 4 | 5 | 5 | 15 |
| Firm 5 | 5 | 5 | 10 |
| Firm 6 | 5 | 5 | 10 |
| Firm 7 | 5 | 5 | |
| Firm 8 | 5 | 5 | |
| Firm 9 | 5 | 5 | |
| Firm 10 | 5 | ||
| Total | 100 | 100 | 100 |
2. In Hotelling's town, if all firms are required to charge the same
fixed price, describe the equilibrium location of three firms. Explain
your answer. Now describe the equilibrium for four firms.
3. All firms in a Cournot monopolistically competitive industry have
the same cost function C=25+10q. Market demand is Q= 110-p.
A. Calculate the equilibrium price, firm output, total output and the
number of firms in the industry.
B. How would these values change if a franchise tax of $75 were imposed
on each firm?
C. What if a technical innovation were to reduce unit production cost to $5?
