Question

Suppose the Herfindahl index for domestic production of televisions is 5,000 . Does this imply a very competitive or a noncompetitive environment?

Short answer

Answer: A Herfindahl index of 5,000 for domestic production of televisions implies a non-competitive environment for the industry, with a few firms dominating the market.

Step-by-step solution

Understand the Herfindahl index

The Herfindahl index is calculated by summing up the squares of the market shares of each firm within an industry. A lower index number typically suggests a high level of competition among a larger number of smaller firms. A higher score, on the other hand, indicates an industry that is less competitive, typically dominated by a smaller number of larger firms.

Analyze the provided Herfindahl index number

The Herfindahl index for domestic production of televisions has been given as 5,000. This means that the market is moderately concentrated, as a result of a few firms having a large share of the total production.

Interpret the Implications

With a Herfindahl index of 5,000, it is safe to say that the domestic television production industry does not imply a very competitive environment. Instead, it suggests a less competitive, or rather a non-competitive environment since the index number is inclined towards the higher range. This indicates that there are a few firms which dominate the market.