In a 50-Firm Industry, Two of the Smallest Firms Merge

question 157

Multiple Choice

In a 50-firm industry, two of the smallest firms merge. Yet the 4-firm concentration ratio and the 8-firm concentration ratio did not change. All things considered, we can say that the industry has

• A) moved closer to pure competition because the number of firms decreased.
• B) moved farther away from competition because the number of firms decreased.
• C) experienced no change in competition even though the number of firms decreased.
• D) to be identified first; otherwise there is no way to tell.

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Definitions:

Noise Trader

A trader whose trades are not based on information or meaningful financial analysis.

Day Trading

The practice of buying and selling financial instruments within the same trading day, taking advantage of small price movements.

Arbitrageur

An investor who attempts to profit from price inefficiencies in different markets by simultaneously buying and selling equivalent assets.