Got a tricky question? Receive an answer from students like you! Try us!

4Firm Concentration Ratio - Essay Example

Only on StudentShare
Author : reyhaley


A four-firm concentration is that ratio which indicates the share of total market sales accounted for by the four largest firms. An industry with 20 firms and CR of 30% is considered to be in monopolistic competition. A four-firm CR of 30% means that 30% of the total market sales in the industry are controlled by the four largest firms…

Extract of sample
4Firm Concentration Ratio

The reason is that the demand curve is higher than the average total cost curve. However, in the long run following this change in the demand, many firms will be attracted to the industry to capture the economic profit since there is free entry and exit and this causes the economic profit to disappear.
The adjust process implies that the industry will continue to maintain the 30% CR because those who look for the economic profit have gone. Monopolistic competition operates only at a normal profit in the long run; therefore the industry will maintain monopolistic competition.
Suppose the industry has 20 firms but the CR for the industry is 80% instead of 30%, this means that the largest four firms are controlling 80% of the total market sales. This type of industry is called oligopoly. In oligopoly, each of the oligopolies faces a downward sloping demand curve, decisions of one firm influence the decision of another and as such they watch each other keenly. Oligopolies do not change prices occasioned by minor adjustments in prices of raw materials, they only change when there are major changes in the general cost of production. In the long run prices do change.
c) Products: products play important role in determining CR of an industry. ...
Download paper

Related Essays

Ratio Analysis Essay
Financial statement analysis consists of the application of analytical tools and techniques to the data in financial statements in order to derive from them measurements and relationships that are significant and useful for decision making (ICFAI Center for Management Research ICMR). The process of financial analysis can be described in various ways, depending on the objectives to be obtained. Financial analysis can be used as a preliminary screening tool of future financial conditions and results. It may be used as a forecasting tool of future financial conditions and results. It may be used…
10 pages (2510 words)
The Four-Firm Concentration Ratio
Eventually, the excess demand would be met and the price would again gain equilibrium.…
3 pages (753 words)
Concentration Indices
This index also shows the amount of competition present among the companies. Basically it takes market shares in account and calculates the sum of shares of the market shares of all the companies present in that particular industry. So if there are N firms in an industry, the HHI is calculated as…
5 pages (1255 words)
Macroeconomics (savings ratio)
A change in any factor that has an impact on the consumption apart from the income is said to result in a shift in the consumption function and this would ultimately affect the saving potential of an individual. The factors affecting the consumption function are:…
10 pages (2510 words)
Financial ratio
A business form common in Europe and Canada, a limited company is a business entity wherein an investor's obligations for the debt of the company is limited to the amount he invested in it (Limited Company n.d.) Some of its accounting and finance features include:Limited debt of investors - As stated in the definition, one of its financial features is shareholders' limited debt. Unlike sole proprietorship wherein an entrepreneur's debt could be more than what he initially invested, investors' accountability of the company debt is limited to the amount he invested.Annual disclosure of financial…
2 pages (502 words)
critically analyse how the concentration ratio has evolved, in recent years, in the following EU industry - Public Utilities.carefully consider the reasons for
The initiative of the European Commission way back in 1969 is to coordinate the economic policies as well as to set a monetary integration among the European Union. In 2007, the goal European Commission has proven to be very successful. Having implemented the ‘Euro’ (€) currency back in 1999 is part of the strategy used by the European Union in achieving their purpose of making the inter-regional and inter-state trading much easier.…
8 pages (2008 words)