Learning Outcome: Micro 16: Discuss the functions of cooperation, competition, and public policies inoligopoliesAACSB: Reflective Thinking9
ESSAY. Write your answer in the space provided or on a separate sheet of paper.37) The breakfast cereal industry has a four-firm concentration ratio of 78 percent. Is this enough information toclassify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?Answer: Most economists classify an industry with a four-firm concentration ratio greater than 40 percent as anoligopoly; therefore, the breakfast cereal industry would be considered an oligopoly. But theconcentration ratio is a flawed measure of the extent of competition in the breakfast cereal industry. Forexample, concentration ratios do not include sales in the United States by foreign firms, so to the extentthat foreign firms sell breakfast cereal in the United States, the concentration ratio understates the degreeof competition in this industry. Also, since concentration ratios are calculated for the national market,regional or local competition is ignored. Concentration ratios are useful for providing a general idea ofthe extent of competition in an industry.significant impact on the decisions, strategies, and profits of the other firms in the oligopoly industry.-run profits. Furthermore, when there are entry barriers in amarket, the industry output does not achieve allocative or productive efficiency, resulting in deadweightlosses.38) Firms in an oligopoly are said to be interdependent. What does this mean?39) Most economists are concerned about entry barriers. Why is this so important to them?
- Fall '13
- Oligopoly, Prime number, AACSB, Page Ref, Green Line, Organon