Understanding Four-Firm Concentration Ratio in Industries A and B
Four-Firm Concentration Ratio:
The four-firm concentration ratio is calculated as the ratio of the sales of the four largest firms in the industry to the total industry sales.
Calculation for Industry B:
In industry B, there are four firms with equal sales of $2.5 million each. Therefore, the total sales for industry B would be $2.5 million x 4 = $10 million.
Four-Firm Concentration Ratio for Industry B:
When we calculate the four-firm concentration ratio for industry B, we divide the total sales of the four largest firms ($10 million) by the total sales of the industry ($10 million):
Four-Firm Concentration Ratio = $10 million / $10 million = 1.0
Therefore, the four-firm concentration ratio for industry B is 1.0, indicating that the top four firms in industry B control the entire industry sales.