HEALTH ECONOMICS QUESTIONS**** PLEASE ANSWER AND EXPLAIN, THANK YOU Suppose ther
ID: 1117790 • Letter: H
Question
HEALTH ECONOMICS QUESTIONS**** PLEASE ANSWER AND EXPLAIN, THANK YOU
Suppose there are N firms in Gollumania’s hospital market with equal market shares.
a)Suppose N=2. What is the HHI? What can you say about competition level of the market (competitive/concentrated/highly concentrated)?
b)Now suppose N=3. What is the HHI? What can you say about competition level of the market (competitive/concentrated/highly concentrated)?
c)How many firms with equal market shares do we need to satisfy that the market is moderately concentrated? Justify your answer showing all your calculations.
d)How many firms with equal market shares do we need to satisfy that the market is competitive? Justify your answer showing all your calculations.
e) The number of hospitals (each has the same market share) in Gollumania increases from 4 to 8 in a year time. Given the prices are administratively set in this hospital market do you expect hospital quality to increase?
Explanation / Answer
N firm is the concentration i.e. total output contributed by these number of firms into the market where N represents the industry.According to the Hirshman index H = M1(square)+ M2(square),.....Mn(square) where m is the share of an independent firm.
consider N=2 then H=1/N = 0.5 Which shows market is uncompetitive
at N=3 then H= 1/3 = 0.33 again uncompetitive
for the market to be competiive or equally distributed firms will have an H=1 Or where N(1/N2)
we can have 20 or more firms the market to have a competitive scenario that will give us an HHI less than 0.1 say 0.05 which is considerably compeitive
Rise in prices would not necessarily mean a rise in quality could also be due to lack of competition where firms may play like a monopoly to raise price and market share.
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