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Discuss concentration ratios and predict long term adjustments

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An industry has 20 firms and a concentration ratio of 30%. If you were in this industry and there was an increased demand for the product that pushed up the price of the goods, what long run adjustments would you expect? And what does your anticipated adjustment process imply about the concentration ratio for the industry?

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Solution Summary

The expert determines a market's structure by its concentration ratio and predicting the market's long-run adjustment to an increase in demand.

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The concentration ratio is a tool to determine the structure of a market. It measures the combined market share of the four largest firms in the industry. A concentration ratio near 0% indicates a perfectly competitive market; a ratio over 50% indicates an oligopoly. A concentration ratio of 30% ...

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