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…
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. ...
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(4Firm Concentration Ratio Essay Example | Topics and Well Written Essays - 500 Words)
“4Firm Concentration Ratio Essay Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.net/miscellaneous/272390-4firm-concentration-ratio.
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The quick ratio is similar to the current ratio, but is a more conservative measure of a company's liquidity. It considers only most liquid assets (it does not include inventory since inventory is not easily liquidated). The formula is: [(current assets) - (inventory value)] / (current liabilities).
Firms would produce efficiently and price would settle near equilibrium.
If there were a shift in demand, it would push price up. Firms would make long range plans to expand and build new plants to fill the increased demand. New entrants may be attracted based on the higher demand and increased price.
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e Herfindahl-type indices use the market shares of all the firms present in any industry, the n-firm concentration ratio uses the market shares of the top ‘n’ number of firms. By the top firms here we refer to the firms with the highest market shares.
The Herfindahl index
The analysis was made so that any external investors who might be interested in the company are able to utilize the calculated ratio results to determine Riordan Inc’s performance and its most updated financial position and strategy. The discussed liquidity ratios of the
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