Suppose you have an industry with 20 firms and the CR is 30%. How would you describe this industry?Suppose the demand for product rises and pushes up the price for the good. What long run adjustments would you expect following this change in demand? What des your adjustment process imply about the CR for the industry?

Now consider that the industry has 20 firms but the CR is 80% instead of 30% How would describe this industry? What are some reaons 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 and industry? How? Contrast the effects on market efficiency if the dominating firms use a price leadership model versus a contestable markets model. Be sure to show your work.

I or others will gladly critique your answer.

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With a concentration ration of 30% which is squared to equal 900. According to the guidelines established by the U.S. Department of Justice in 1992, the market is “unconcentrated”.

What the four firm concentration ratio tells you is how much market share the top four firms in a particular industry have. In other words, it says how much of the total business is taken up by the top four producers. In the first part, the industry with the CR of 30% means that the market is largely fragmented. There are many competitors, and no competitor appears to have a dominant position in the market. This industry could be the agricultural industry, in which there are alot of suppliers, but no major player that can manipulate the market.

Thus, this market is probably a perfect competition model, and the firms are price takers, meaning that consumers have the power, as if one firm raises prices, the consumer can go to another firm. It also indicates that there are relatively few barriers to entry. Thus, if demand increases, new firms will likely enter into the market.
In the second, the CR has increased to 80%, indicating that the top four firms have 80% of the business. Thus, this is probably more like an oligopoly. These firms have a bit of pricing power, as there aren't too many other competitors whom the consumer can turn to if the prices are raised. This is more of a specialized industry. One that might fall into this is software, with a dominating Microsoft controlling a large portion of it, or oil, with OPEC controlling the large majority of the available oil.

Degree in economics

To describe this industry, we can use the Herfindahl-Hirschman Index (HHI), which is calculated by summing the squared market shares of each firm. In this case, the CR is 30%, which squared is 900.

According to the guidelines established by the U.S. Department of Justice, a market with an HHI below 1,500 is considered "unconcentrated." Therefore, the industry with a CR of 30% and an HHI of 900 would be considered "unconcentrated."

In the long run, following an increase in demand and the subsequent increase in price, we would expect the industry to experience adjustments. These adjustments can take different forms:

1. Entry of new firms: The higher price may attract new firms to enter the industry, since they can now generate profits. This would increase competition and potentially lower the CR.

2. Expansion of existing firms: The existing firms may also expand their production capacities to meet the increased demand. This could lead to a decrease in the CR if the expansion is significant enough.

3. Exit of firms: Conversely, if the increased demand is not sustainable or if firms are unable to adapt to the new market conditions, some firms may choose to exit the industry. This could increase the CR if the exiting firms have smaller market shares.

The adjustment process implies that the CR for the industry could decrease due to increased competition resulting from the higher price and increased demand.

Now let's consider an industry with 20 firms but a CR of 80%. This means that a few firms hold a dominant position in the market, leading to a concentrated market structure.

There can be several reasons why this industry has a high CR compared to the previous one:

1. Barriers to entry: There may be significant barriers preventing new firms from entering the market, such as high capital requirements, patents, or proprietary technologies. These barriers can make it difficult for smaller firms to compete and thus contribute to a high CR.

2. Economies of scale: The dominant firms may have achieved economies of scale, allowing them to produce goods at lower costs compared to smaller firms. This cost advantage can give them a competitive edge and help maintain a high CR.

3. Strategic behavior: The dominant firms may engage in strategic pricing or other competitive practices that deter smaller firms from entering or thriving in the market. This can contribute to maintaining a high CR.

While it may be more challenging for smaller firms to thrive and profit in such an industry, it is not impossible. Smaller firms can still find niche markets, specialize in unique products or services, or differentiate themselves in other ways to gain a competitive advantage.

The effects on market efficiency can differ depending on whether the dominating firms use a price leadership model or a contestable markets model:

1. Price leadership model: In this model, the dominant firms set the prices, and other firms in the industry follow suit. This can lead to a lack of price competition and potentially result in higher prices for consumers. Market efficiency may be lower in this case.

2. Contestable markets model: In a contestable market, there are low barriers to entry, allowing new firms to enter and compete with the dominant ones. This can lead to increased competition, lower prices, and higher market efficiency.

It's important to note that the explanation provided above is a general analysis and may not capture all the complexities specific to each industry or market situation.