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    Principles of microeconomics

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    Industry structure is often measured by computing the Four Firm Concentration Ratio.Suppose you have an industry with 20 Firms and the CR IS 30%.How would you describe this industry?Suppose the demand for the product rises and pushes the price for the good.What long-run adjustments you expect following this change in demand.
    Now consider the industry has 20 Firms but the CR for the industry is80% instead of 30%.How would describe this industry?What are some reasons why this industry has a high CR while the other industry had a low CR? Is it possible for smaller firms to thrive and profit in such an industry?How?contrast the effects on market efficiency if the dominating firm use a price leadership model versus a contestable markets models.

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    Solution Preview

    In economics, the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry.
    Market forms can often be classified by their concentration ratio. Listed, in ascending firm size, they are:
    ? Perfect competition, with a very low concentration ratio,
    ? Monopolistic competition, below 40 percent for ...

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