Question 1 Forey, Inc., competes against many other firms in a industry. Over the last decade, several firms haveentered this industry and, as consequences, Forey is earning a return on investment that roughlyequals the interest rates. Furthermore, the four-firm concentration ratio and Herfindahl Hirschmanindex are both quite small. Based on this information, which market structure best characterizes theindustry in which Forey competes? Explain the characteristics this market structure and whathappens to the Forey Inc’s profit in the short-run and long-run.Solution:A. Based on information in hand as mentioned in above case, Forey, Inc competes against many other firm and over thedecade, several firms have entered this industry because of which profit margin has been reduced for Forey. So, based on above, we can say, Monopolisticis the market structure under which Forey is operating. Reasons are asbelowLarge number of small firms competing against each other. Four-firm concentration ratio and H-H ratio arequite small which means, large four companies hold a very small market share. Firms are competing against each other with slightly differentiated product. Not dominated by small number of firm, i.e. not an Oligopoly.Not a Monopoly. B. Characteristics of Monopolistic marketMore than one firms selling similar product and competing in that market. Everyone offers s similar product but that product cannot be completely substituted. Example, Herbal Soaps likefrom Patanjali, Himalaya, Ayur, produces similar product some good for skin case, some for keep skin hydrated,Acne and Pimples preventions etc. Free entry and exist for the companies in market.