Suppose that there are 10 firms in an industry, each accounting for 10 percent of industry sales. Two of these firms decide to merge. Which of the following statements about the impact of this merger is (are) INCORRECT?
A) The merger causes the four-firm concentration ratio to increase from 40 to 50.
B) The merger causes the HHI to increase by 100.
C) The merger will not change the HHI unless the industry's sales increase.
D) Both answers A and C are incorrect.
Question 2
If penalties for trading illegal drugs are instituted on both buyers and sellers, the
A) quantity might increase or decrease but the price will rise.
B) price might rise or fall, but the quantity will decrease.
C) price and the quantity will both decrease.
D) price and the quantity will both increase.
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