Solution 1

The demand(D) curve for a firm in a perfectly competitive market fluctuates fundamentally

from that of the whole market demand curve. The market demand(D) curve inclines to

descend downward sloping because of aggregation of the demand for whole market, while

the perfectly competitive firm demand curve is a flat line parallel to the horizontal axis

because it can sell as much quantity of services and goods they want. The horizontal demand

curve demonstrates that the curve is perfectly elastic that means if the firm increases the price

that leads to no sell in the market or decline in the market will short sell the whole output

immediately but it will be the cause of loss. The downward slopping demand curve represents

the less elastic demand curve.

Solution 2

Profit maximization condition for monopoly differs from the perfectly competitive market

because monopoly maximizes their profit at MR = MC condition, while the perfectly

competitive market maximizes their profit at the MR = P=AR. The perfectly competitive

market is the most efficient while monopoly is less efficient market because it tries to capture

the consumer surplus as much possible. The price in the monopolistic market never equals to

the marginal cost, it will be greater than marginal cost.

Solution 3
a. HHI (Herfindahl-Hirschman Index) is defined as the summation of the square of the

market share. It simply demonstrate the firm having largest market share have largest

concentration and lowest market share have lowest concentration.

HHI = 372+352+172+112 = 1369+1225+289+121 = 3004

Based on the table given the highest concentrated industry is Coca-Cola because it has

greatest market share, gives the highest HHI index.

Based on the US antitrust ethical laws unilateral effect happens because of all above

company sell close substitute and merger will eliminate the innovation and

competition. In such kind of case, a horizontal merger takes place because market

share is given.

b. I think the Department of Justice and the Federal Trade Commission would approve a

merger between second and third companies listed in the table based U.S. merger

guidelines and antitrust laws. It happens because based on merger guidelines to

protect the firm from the operating loss or survive in the market based on the

horizontal category. The new market share will 52%(35+17) of the new company.

c. Barriers to entry is a financial matters and business term portraying factors that can

forestall or block newcomers into a market or industry area, thus limit rivalry. These

can incorporate high beginning up costs, administrative obstacles, or different

impediments that keep new contenders from effectively entering a business area.

Obstructions to section advantage existing firms since they ensure their piece of the

overall industry and capacity to produce incomes and benefits.

 Yes, such kind of market has a barrier to entry. The most

important barriers are a huge investment, huge infrastructure, costly production

technology, creation of brand value, etc.

Reference:

 Hal R Varian, 2014, Intermediate microeconomics, Ninth Edition, W.W. Norton &

Company, New York.

 The united states department of justice, 8 April 1997

https://www.justice.gov/atr/horizontal-merger-guidelines-0
 The united states department of justice, 31 July 2018, Herfindahl-Hirschman Index.

https://www.justice.gov/atr/herfindahl-hirschman-index#:~:text=The%20HHI%20is

%20calculated%20by,%2B%20202%20%3D%202%2C600