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Market Structure and the Behavior of the Firm

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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 I describe this industry? Suppose the demand for the product rises and pushes up the price for the good. What long-run adjustments would I expect following this change in demand? What does my adjustment process imply about the CR for the industry?

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This solution discusses concentration ratios and nature of the industry in 300 words.

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Concentration ratios are calculated based on the market shares of the largest firms in the industry.

An industry with 20 firms and the CR = 30% is called "Low Concentration", for a concentration ratio of 0 to 50 percent is commonly interpreted as low concentration. The industry is monopolistically competitive and that the four largest firms have very moderate market control.

When the demand for the product rises and pushes up the price for the ...

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