Question

The concentration ratio provides a measure of the extent to which an industry Question 63 options: produces a useful product. is dominated by a small number of firms. is earning economic profits. is earning accounting profits.

Answer 1

"The concentration ratio provides a measure of the extent to which an industry is dominated by a small number of firms.

Step-by-step explanation:

Let us assume that there are 20 firms in the paper milling industry with a total sales of $40 billion per annum. From these 20 firms, 4 firms have annual sales totalling $25 billion. With these assumptions made, we can calculate the concentration ratio as the "Annual sales of the 4 firms divided by the Industry's annual sales, and then multiplied by 100." Our calculation produces a concentration ratio of 62.5%. This concentration ratio shows the dominance of these four firms in the paper milling industry. The remaining 16 firms control 37.5% (100% - 62.5%) of the annual sales in the industry. This examples explains what a concentration ratio is and how the calculation can be carried out.