The correct ranking of the four basic market structures from low HHI (Herfindahl-Hirschaman Index)to high HHI is
A)monopolistic competition, perfect competition, oligopoly, monopoly.
B)perfect competition, oligopoly, monopolistic competition, monopoly.
C)monopoly, oligopoly, monopolistic competition, perfect competition.
D)perfect competition, monopolistic competition, oligopoly, monopoly.
E)monopoly, monopolistic competition, oligopoly, perfect competition.

Question

Quizplus · Accepted Answer

The HHI measures market concentration, which is higher in markets with fewer firms or where a dominant firm controls a large share of the market. Perfect competition has the lowest HHI because there are many small firms, each with a small market share. Monopolistic competition has slightly higher HHI because there are fewer firms with some market power. Oligopoly has even higher HHI because a few large firms dominate the market. Finally, monopoly has the highest HHI because there is only one firm with complete market power. Choice D correctly orders the market structures from low to high HHI.

The Correct Ranking of the Four Basic Market Structures from Low