All evidence points to the fact that firms' market power within an industry and industry concentration ratios are
A) directly related, that is, firms' market power is high when concentration ratios are high
B) inversely related, that is, firms' market power is low when concentration ratios are high
C) totally unrelated, that is, they are directly related in some industries and indirectly related in others
D) only moderately related, depending on the degree of competition in the industry
E) low for monopoly and high for perfect competition

Question

Quizplus · Accepted Answer

Market power refers to a firm's ability to raise and maintain price above the level that would prevail under competition without losing customers. Industry concentration ratios measure the extent to which a small number of firms dominate total sales in an industry. When concentration ratios are high, indicating that a few firms dominate the market, these firms typically have high market power because they can influence prices, output, and other market factors. This direct relationship is a fundamental concept in industrial organization economics.

All Evidence Points to the Fact That Firms' Market Power