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1)What is the effect of a lump-sum tax (which is like an additional fixed cost) on a monopoly? 2)The Herfindahl-Hirschman Index a) takes into account the market share of all the firms in the market
1)What is the effect of a lump-sum tax (which is like an additional fixed cost) on a monopoly?
2)The Herfindahl-Hirschman Index
a) takes into account the market share of all the firms in the market.
b) is equal to 10,000 for a market with an infinite number of small firms.
c) is equal to 0 for a market that is an effective monopoly.
d) is smaller the more unequal the market shares of a group of firms is negatively correlated with the concentration ratio.
Expert Solution
1)In the short-run, a lump-sum tax has no effect on the profit maximization quantity in the monopoly market. If the profit maximization quantity is produced continuously, it still does not affect the likelihood of shutting down.
In the long-run, a lump-sum tax has no effect on the profit maximization quantity in the monopoly market. But if the quantity produces is increasing, then it will affect the likelihood of shutting down.
2)Ans: takes into account the market share of all the firms in the market.
The HHI is a commonly accepted measure of market concentration. It is calculated as sum of the squares of the market share of each competing firms in the market for a particular industry.
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