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# Concentration ratios

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Details: 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 up the price for the good. What long-run adjustments would you expect following this change in demand? What does your adjustment process imply about the CR for the industry? Now consider that the industry has 20 firms but the CR for the industry is 80% instead of 30%. How would you 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?

There are two separate parts to this IP: a market with CR =30 and a market with CR =80. This project concerns the measurement and analysis of competition. . Each part requires you to describe the "industry"; interpret "industry" to be "market structure" For each part, select one of the four market (industry) structures and justify your choice. Note that there is insufficient information in this IP to calculate HHI HHI cannot be calculated.

##### Solution Summary

Concentration ratios are summarized.

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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 good. Then in the short run, the existing 20 firms will make positive profit and become better off. The short-run equilibrium will be reached where marginal cost equals marginal revenue, i.e. profit maximizing.
However, In the long-run firms are able to change the scale of product and enter or leave the industry. New firms will also enter the industry to take advantage of the profit, and the total supply will be increased, which will press the market price down to the long-run equilibrium price (= the ...

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