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Busi Critical Thinking 5

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Submitted By matthew1019
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Questions for Critical Thinking 5
Salvatore’s Chapter 10:

a. Discussion Questions: 2 and 8. b. Problems: 1 and 5.

2. a) What are the advantages of the Herfindahl index over concentration ratios in measuring the degree of concentration in an industry? b) What is the disadvantage of both?
The Herfindahl index is the sum of the squares of the market shares of each member within the industry and is always less than one. One advantage is that the Herfindahl index gives a look at the larger groups in an industry, while concentration ratio just describes the level of concentration the largest members of a specific industry are presently holding. An advantage is that the larger members will have a greater influence on pricing, marketing and other key indicators that a smaller firm will not. A disadvantage is that the smaller members may be greatly influential, or positioned in a spectacular market, and the Herfindahl index will not be able to describe potential that key player small firms may hold.

8. In what way does OPEC resemble a cartel? How successful is it?
OPEC, or The Organization of Petroleum Exporting Countries, which is essentially a cartel of oil exporting partners in order to dominate the market, can manipulate the supply of oil in order to keep prices, and profits, high. The 12 member-nations control nearly 80% of the world’s oil along with 44% of the world’s daily production. They have been accused of keeping oil prices high by producing less oil than the market needs. In essence, this is manipulating supply and demand. This not only resembles a cartel, it is in fact the essence of one. The gasoline prices at the pump tell us all we need to know about how successful they are. After Hurricane Katrina, gasoline prices doubled, and remain their today. This is the perfect example of how powerful and successful OPEC is. 1. Find

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