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    You want to start a company

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    You want to start a company, and are trying to decide between two different industries. You are doing your final research before you write your business plan.

    Industry A has 20 firms and a Concentration Ratio (CR) of 30%

    â?¢What is the name for this type of industry?
    â?¢Describe some of this industry's characteristics.
    â?¢If you were in this industry and there was an increased demand for the product that pushed up the price of goods, what long-run adjustments would you expect?
    â?¢What does your anticipated adjustment process imply about the CR for the industry?
    Industry B has 20 firms and a Concentration Ratio (CR) of 80%.
    â?¢What is the name for this type of industry?
    â?¢Describe some of this industry's characteristics.
    â?¢What are some reasons why this industry has a high CR while Industry A had a low CR?
    â?¢Is it possible for smaller firms to thrive and profit in Industry B? Why or why not?

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    Solution Preview

    Economic factors
    An industry's concentration ratio is calculated based on the market shares of the largest firm in the industry. 'Low concentration' is the term used to refer to an industry with only 20 firms and a concentration ratio of 30 percent. Any industry with a concentration ratio of between 0 and 50 percent is commonly interpreted as an industry with low concentration. In addition to this characteristic, there are some other characteristics facing this type of industry such as the availability of a monopolistic competition and having the four largest firms have a moderate market control (Mărginean, & Toma 2011).

    When there is an increase in demand for a product that changes the prices of goods, some long run adjustments are expected however, in the short run, the existing 20 firms will generate more profits and become better off in the market. Profit maximization will be enhanced since the short term equilibrium will be reached where the marginal costs and the marginal revenue are similar (Pekey, Bozkurt, Pekey, ...

    Solution Summary

    This solution contemplates the name for this type of industry and also describe some of this industry's characteristics.

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