Question

"Suppose each of the 50 states had 20 gasoline stations and all

stations were the same size. The four-firm concentration ratio,
based on national data, would be:
a. 0.008
b. 0.004.
c. 0.016.
d. 0.002."

Answer 1

The correct answer is option b. The four-firm concentration ratio in a market where each of the 50 states has 20 identical gasoline stations is 0.004, since each station would have an equal share and the four largest firms would thus account for 0.4% of the market combined.

Step-by-step explanation:

The student's question concerns the calculation of the four-firm concentration ratio, which is an economic measure used to assess the degree of concentration and competition in a market. According to the scenario provided, each of the 50 states has 20 gasoline stations, making a total of 1000 stations nationally. Assuming each station has the same market share, each would have a 0.1% share (1/1000).

Now, if we consider the four largest firms, in this case, given all stations are equal, these four firms would represent four stations. Therefore, the total market share for the four largest firms would be 0.1% * 4 = 0.4%. Expressed as a decimal for the concentration ratio, this is 0.004. Hence, the correct option based on the national data provided would be option b: 0.004.