Consider an Industry That Is Made Up of Six Firms

question 202

Multiple Choice

Consider an industry that is made up of six firms with the following market shares: Firm A - 50%, Firm B - 20%, Firms C and D - 10% each, and Firms E and F - 5% each.What is the value of the Herfindahl-Hirschman Index and how will the industry be categorized?

• A)2,500; mildly concentrated
• B)3,150; highly concentrated
• C)8,100; highly concentrated
• D)10,000; effectively competitive

---

Definitions:

Pay Interest

The act of compensating lenders or depositors for the use of their money, typically expressed as an annual percentage of the principal.

Face Value

The original value or nominal value of a security as stated by the issuer, often used in the context of bonds or other fixed-income securities.

Weighted Average Flotation

An average calculation of flotation costs for new securities, weighted by the proportion each security contributes to the total amount issued.

Capital Structure

Capital structure describes the mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, which collectively finance the company's operations and growth.