Question

Concentration ratios measure the

a. geographic location of the largest corporations in each industry.
b. degree to which product price exceeds marginal cost in various industries.
c. percentage of total industry sales accounted for by the largest firms in the industry.
d. number of firms in an industry.

Answer 1

The concentration ratio measures the percentage of total industry sales accounted for by the largest firms in the industry. It is an early tool used to measure the degree of monopoly power in an industry. Hence, the correct answer is option (c).

Step-by-step explanation:

The concentration ratio measures the percentage of total industry sales accounted for by the largest firms in the industry. It is an early tool used to measure the degree of monopoly power in an industry. Typically, the concentration ratio focuses on the top four to eight firms in the industry and assesses their combined market share.

For example, if the four-firm concentration ratio is 70%, it means that the top four firms in the industry collectively account for 70% of the total industry sales. The concentration ratio helps regulators understand market structures and identify potential risks of monopolies or high market concentrations.