What are the shortcomings or limitations of the “four-firm” concentration ratios?
What will be an ideal response?
A “four-firm” concentration ratio shows the percentage of output produced by the four largest firms in an industry. If the four top firms produce over 40% of the output in an industry, the industry is considered to be monopolistic. Such concentration ratios have four shortcomings. First, they do not take into account local conditions. Concentration ratios are estimated for the nation as a whole, but there can be a high degree of concentration in local markets even when the national concentration ratio is low. Second, there can be inter industry competition that limits the degree of market power, but this competition will not be captured by concentration ratios that are based on industry definitions. Third, concentration ratios are based on domestic output and do not take into account import competition, which can lessen the degree of market power in domestic industries. Fourth, concentration ratios do not measure the distribution of market power among the top four firms. A concentration ratio will not distinguish the difference in cases where two firms or four firms dominate an industry.
You might also like to view...
If real GDP is higher in one country than in another, then we can be sure that the standard of living is higher in the country with the higher real GDP
a. True b. False Indicate whether the statement is true or false
Recall the Application about productivity in the nation of Latvia in the 1990s to answer the following question(s). According to this Application, workers in the European Community were more productive than workers in Latvia in the 1990s, yet despite this, the European Community chose to trade with Latvia. Engaging in trade with Latvia allowed ________ to become more productive.
A. workers in the European Community but not workers in Latvia B. workers in Latvia but not workers in the European Community C. neither workers in the European Community nor in Latvia D. workers in both the European Community and in Latvia
For each interest rate, the LM curve illustrates the level of output where
A) the goods market is in equilibrium. B) inventory investment equals zero. C) money supply equals money demand. D) all of the above E) none of the above
Explain the time dimension as it relates to elasticity. Be sure to include in your answer the difference in elasticity between the short run and the long run
What will be an ideal response?