Economic Factors Assignment Example | Topics and Well Written Essays - 1000 words

Economic Factors - Assignment Exampleindustriousness A 20 firms and a Concentration Ratio (CR) of 30% Name and some of the industrys characteristics An industry with 20 firms and a CR of 30% is called a low concentration industry. This is a token of industry in which its four largest firms find less than 50% of its market. According to Ruffinand Gregory (2000), this type of industry is monopolistically competitive and the market control gained by its four largest firms/industries is moderate. there ar many firms producing a similar crossroad. Prices are set through a contestable market model hence the decisions of one firm are not influenced by the decisions of another firm. The above is supported by the fact that in this industry, the key to success is the ability to offer products at a depress price (Weiss, 1989). Even of the sellers were few or even one, they would act as if they were many. Entry and exit from the industry is costless and new entrants are mainly attracted into the industry if a possession of market power if profitable. The pressures of competition help to prevent monopoly and keep the industry operating at a prices and outputs that are competitive. Expected long haul adjustments in case there was an increased demand for a product that pushed up the price of goods When there is an increase in demand of a product that in turn leads to an increase in its price, all the 20 firms in the industry are going to make positive profits and prosper. In the short-run, bare(a) costs and marginal revenue will be equal indicating an equilibrium or profit maximization. In the long-run, firms will alter the scale of product and bring or enter the industry. Other firms who want to take advantage of the profit will enter the industry leading to a rise in offer of the product. This will push the market prices of the product down to the long-run equilibrium. What the anticipate adjustment process imply about the CR for the industry The above-mentioned anticipated adjustments imply that there is a relationship between the CR of the industry and the properties of the industry. For example, when the CR is low as in this case, monopolistic competition takes place resulting to the market exhibiting elements of both monopoly and perfect competition. The reason behind this is that since the industry is monopolistically competitive, each of its existing firms has the power to set prices. They will compete for a control of the market assign by lowering their prices and in the end, many of them will charge the long-equilibrium price. This establishes an equilibrium and eliminates incentives for entry. In other words, a low CR eliminates temporary rise in prices and restores the economy to a long-run equilibrium level, a characteristic of a competitive market. Therefore, it is true to say that the lower the CR, the lavishlyer the level of competition of the market. Industry B 20 firms and a Concentration Ratio (CR) of 80% Name and some o f the industrys characteristics An industry having 20 firms and a CR of 80% is called a high concentration industry. 20 firms and a CR of 80% indicate a highly oligopolistic industry. In this type of industry, a significant level of market control is under the power of four of its largest firms (Ruffinand, 2000). The market is dominated by few firms who sell slightly differentiated