40. If the four-firm concentration ratio for industry X is 80,

A. the four largest firms account for 80 percent of total sales.
B. each of the four largest firms accounts for 20 percent of total sales.
C. the four largest firms account for 20 percent of total sales.
D. the industry is monopolistically competitive.

Question

40. If the four-firm concentration ratio for industry X is 80,

A. the four largest firms account for 80 percent of total sales.
B. each of the four largest firms accounts for 20 percent of total sales.
C. the four largest firms account for 20 percent of total sales.
D. the industry is monopolistically competitive.

BlackTom AI · Accepted Answer

The question asks about the meaning of a four-firm concentration ratio of 80 in industry X, followed by four labeled statements to evaluate.
Option A: 'the four largest firms account for 80 percent of total sales.' This is the precise definition of a four-firm concentration ratio of 80: it aggregates the market shares of the four biggest producers and shows they command 80% of industry sales. This interpretation directly matches how the ratio is described.
Option B: 'each of the four largest firms accounts for 20 percent of total sales.' While 20% times four would total 80%, the concentration ratio does not force equal shares among the top four. The actual shares could be lopsided (e.g., 40%, 25%, 10%, 5%), yet still sum to 80%. Therefore, B misstates the implication by implying equal distribution.
Option C: 'the four largest firms account for 20 percent of total sales.' This contradicts the given ratio. If the four-firm concentration ratio is 80, the top four together hold 80%, not 20%. Hence this option is incorrect.
Option D: 'the industry is monopolistically competitive.' A high concentration ratio (80) indicates substantial market power among a few firms, which is inconsistent with monopolistic competition, where many firms exist and concentration is generally low. Therefore D does not align with the meaning of an 80 percent four-firm concentration ratio.
In summary, the statement that correctly reflects a four-firm concentration ratio of 80 is that the four largest firms account for 80 percent of total sales, while the other options misinterpret share distribution or mischaracterize the type of industry.

Similar Questions

8. The Herfindahl index is: A. the sum of the squared percentage market shares of all firms in the industry. B. the sum of the market shares for the top 10 firms in the industry. C. a measure of product differentiation in the market. D. a measure of how easy it is for new firms to enter the market.

A high Four-Firm Concentration Ratio (CR4), such as 80%, indicates:

Which of the following statements is NOT correct?

Which of the following industries has the highest concentration ratio?

The Herfindahl index solves which problem with the N-Firm ratio?

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