# Concentration Ratio

Which choice is true? 3-Firm Concentration Ratio, Herfindahl Index Industry A: 40%, 0.095 Industry B: 75%, 0.1938 A. Industry A can be charaterized as a Oligopolistic industry. B. Firms in Industry A would have a greater coordination than firms in Industry B. C. Industry A has more equivalent firms than Industry B. D. Product differentiation strategy would be more appropriate for firms in Industry B than for firms in Industry A. Any suggestions? Thx.

I’d go with C. A is out. Industry A seems to be more monopolistic competition. B is out. Industry A would have LESS corrdination than firms in B, an oligopoly. D is out. Since a is a monopolistic competition, those firms require marketing efforts to differentiate.

Well if you figure out how many firms are in each industry you can rule out question A. Industry A = 1/.095 = about 10.5 firms Industry B = 1/.1938 = 5.16 firms Either B or C

C is what I’m going with…

c

C. Even with a CR of 40%, that gives the industry a competitive structure which means more firms can be of equal size.

That’s what I was thinking. What do they mean by coordination?

coordination probably means cooperation, like what firms in an oligopoly would do

likely a case where decisions of firm likely effects decisions of other firms such as in oligopoly or Airline industry.

Thanks for the explanation. So if that’s the case the answer is def C then

Thanks for all of your help!

what about “D”. If B, which has an index of greater than 1.8 which means that there is a high level of concentration and competition, then firms would want to pursue product differentiation.

gazhoo Wrote: ------------------------------------------------------- > what about “D”. If B, which has an index of > greater than 1.8 which means that there is a high > level of concentration and competition, then firms > would want to pursue product differentiation. “there is a high level of concentration and competition” is incorrect. Concentration yes, competition not neccesarily so. the 75% 3 firm concentration raio indicates an oligpoly environment for industry B, not monpolistic competition

so c is correct?