Merger guidelines developed by the U.S. Department of Justice and the Federal Trade Commission use the Herfindahl-Hirschman Index as a measure of concentration. This index measures concentration in an industry by
A) adding up the market shares of all firms in the industry, squaring this number and then dividing by the number of firms in the industry.
B) squaring the market shares of each firm in an industry and then adding up the values of the squares.
C) determining the market shares of the four largest firms in the industry, but unlike the concentration ratio, the Index includes sales in the United States by foreign firms.
D) squaring the four-firm concentration ratio of the industry and dividing this number by the total number of firms in the industry.
B
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The situation where one person's demand for a good depends on the consumption of the good by others is called a
A) network externality. B) network internality. C) consumption externality. D) production externality.
The usefulness of a model is determined by
A. how many of the possible relationships that exist are included in the model. B. how well it uses the ceteris paribus assumption. C. whether it possesses realistic assumptions. D. whether it helps to explain or predict real world phenomena.