Question

1. Suppose that there are two industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are six firms in industry B. The first four firms have equal sales of $2.5 million for each firm while the last two firms have equal sales of $1.5 million. What is the four-firm concentration ratio for industry A and industry B?

Answer 1

Total sales in market A = $5 + $2 + $1 + $1 + $1 = $10

Market share of firm 1 = $5/$10 * 100 = 1/2 * 100 = 50%

Market share of firm 2 = $2/$10 * 100 = 1/5 * 100 = 20%

Market share of firm 3 = $1/$10 * 100 = 1/10 * 100 = 10%

Market share of firm 4 = $1/$10 * 100 = 1/10 * 100 = 10%

Market share of firm 5 = $1/$10 * 100 = 1/10 * 100 = 10%

Four-firm concentrationr ration in industry A = total market share of the top-four firms = 50% + 20% + 10% + 10% = 90%

Total sales in market B = $2.5 + $2.5 + $2.5 + $2.5 + $1.5 + $1.5 = $13

Market share of firm 1 = $2.5/$13 * 100 = 0.1923 * 100 = 19.23%

Market share of firm 2 = $2.5/$13 * 100 = 0.1923 * 100 = 19.23%

Market share of firm 3 = $2.5/$13 * 100 = 0.1923 * 100 = 19.23%

Market share of firm 4 = $2.5/$13 * 100 = 0.1923 * 100 = 19.23%

Market share of firm 5 = $1.5/$13 * 100 = 0.1154 * 100 = 11.54%

Market share of firm 6 = $1.5/$13 * 100 = 0.1154 * 100 = 11.54%

Four-firm concentrationr ration in industry B = tottal market share of the top-four firms = 19.23% + 19.23% + 19.23% + 19.23% = 76.92%