Assume That the Four-Firm Concentration Ratio in an Industry Is

question 240

Multiple Choice

Assume that the four-firm concentration ratio in an industry is 85 percent.Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?

• A)The high concentration may be due to patents owned by the largest firms but competition will increase when patent rights expire.
• B)If high concentration is the result of large firms owning much of the available supply of a key input, the industry will become more competitive when new sources of the input are discovered by other firms.
• C)Even though concentration is high, large firms in the industry may act competitively by spending large sums on advertising.
• D)The threat of entry into this industry can cause firms in the industry to lower their prices and profits in order to deter entry.

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Definitions:

Price Effect

The impact on the quantity demanded of a good or service resulting from a change in its price, holding all other factors constant.

Quantity Effect

The change in quantity demanded or supplied of a good or service due to a change in its price.

Price-elastic Demand

A situation where the quantity demanded of a good or service significantly changes in response to changes in its price.

Total Revenue

Total revenue is the total amount of money received by a company from sales of its goods or services before any expenses are subtracted.