Suppose There Are Only Two Firms in an Industry and Their

question 242

Multiple Choice

Suppose there are only two firms in an industry and their products are perfect substitutes for each other.Each firm has 50 percent of the market share,and they have the same marginal cost.The Hirfindahl Hirschman Index (HHI) in this market is ________,and the government should ________.

• A) 5,000; regulate this market because the HHI is rather high
• B) 2,500; not regulate this market because HHI is rather low
• C) 5,000; not regulate this market because the price will become equal to the marginal cost
• D) 2,500, regulate this market because HHI is rather high

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