1. (5 points) In January 2007, XM enjoyed about 58 percent of satellite radio subscribers, and Sirius had the remaining 42 percent. Both firms were suffering losses, despite their dominance in the satellite radio market. In 2008, the Department of Justice decided not to challenge a merger, and these two firms united to become Sirius XM.

(a) What is the 4-firm concentration ratio before the merger for the satellite radio industry?

Please show your calculations

(b) What is the Herfindahl-Hirschman index before the merger for the satellite radio industry?

Please show your calculations.

(c) What is the 4-firm concentration ratio after the merger for the satellite radio industry? Please

show your calculations

(d) What is the Herfindahl-Hirschman index after the merger for the satellite radio industry?

Please show your calculations.

(e) Explain why, even with your answers to (c) and (d), the government still approved the

merger.

2.(5 points) (a) A Herfindahl index of 10,000 suggests what type of a market? Please explain.

(b)A student figured out that the HHI for an industry was 15,000. What is the proper conclusion about this number for the HHI calculated by the student? Please explain.

3. (5 points) The widget industry is comprised of six firms of varying sizes. Firm 1 has 35 percent of the market. Firm 2 has 25 percent, and the remaining firms have 10 percent each.

(a) What is the Herfindahl-Hirschman index for the widget industry?

(b) What will be the change in the Herfindahl-Hirschman index if there is a merger between

firms 5 and 6? Please show your calculations