• perfect competition arises when there are many

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Unformatted text preview: • Perfect competition arises when there are many firms, each selling an identical product, many buyers, and no restrictions on the entry of new firms into the industry • Monopolistic competition is a market structure in which a large number of firms compete by making similar but slightly different products • Product differentiation gives a firm in monopolistic competition an element of market power • Oligopoly is a market structure in which a small number of firms compete • Monopoly arises when there is one firm which produces a good or service that has no close substitutes and in which the firm is protected by a barrier preventing the entry of new firms • The four-firm concentration ratio is the percentage of the value of sales accounted for by the four largest firms in an industry • A low concentration ratio indicates a high degree of competition and a high concentration ratio indicates an absence of competition • The Herfindahl-Hirschman Index is the square of the percentage market share of each firm summed over the largest 50 firms (or summed over all the firms if there are fewer than 50) in a market • A market in which the HHI is less than 1000 is regarded as being competitive • A market in which the HHI lies between 1000 and 1800 is regarded as being moderately competitive • A market in which HHI exceeds 1800 is regarded as being uncompetitive...
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