Economics (MindTap Course List)
Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
Question
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Chapter 24, Problem 1QP
To determine

Determine the market structure that is common in all the four firms.

Expert Solution & Answer
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Explanation of Solution

The common criterion in all the four firms’ market structure based on the pricing decision is that all the firms produce the quantity of output where the marginal cost is equal to marginal revenue.

Economics Concept Introduction

Perfect competition: Perfect competition is a type of market structure, which is considered by a large number of sellers and buyers who exist in the market, no barriers to entry and exit, selling the homogenous commodity, and the firm is known as a price taker.

Monopoly: Monopoly is a type of market structure, which is considered by a single seller who exists in the market, high barriers to entry and exit, selling goods that have no close substitutes, and the firm is known as the price maker.

Monopolistic competition: Monopolistic competition is a type of market structure, which is considered by a large number of buyers and sellers who exist in the market, few barriers of entry and exit, differentiated products, and the firms have some control over the market price.

Oligopoly: Oligopoly is the type of market structure, which is considered by few sellers who exist in the market with a large market share, high barriers to entry, and selling differentiated products.

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M12
Consider two industries, each comprising ten firms. In industry A, the largest firm has a market share of 49 percent. The next three firms have market shares of 7 percent each, and the remaining six firms have equal shares of 5 percent each. In industry B, the top four firms share the bulk of the market with 19 percent apiece. The next largest firm accounts for 14 percent, and the smallest five firms equally split the remaining 10 percent of the industry. a. Compute the four-firm concentration ratio and HI for each industry. Compare these measures across the two industries. Which industry do you think truly exhibits a more competitive structure? Which measure do you think gives a better indication of this? Explain. b. Now let the three second largest firms in industry A merge their operations while holding onto their combined 21 percent market share. Recalculate the HI for industry A. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care…
“Why do industries like electricity or cable TV have just one or two major firms while other industries like restaurants or clothes have hundreds or thousands? What might be a general difference that leads to some industries having many firms while others are dominated by just one or two?”
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