Suppose there are 8 firms in an industry, and each has a different market share. If the largest firm has twice the market share of the second largest, which has twice the market share of the third largest (and so on to the eighth firm), what is the approximate four-firm concentration ratio?
A) 65 percent
B) 84 percent
C) 94 percent
D) 60 percent
E) 50 percent

Question

Quizplus · Accepted Answer

The four-firm concentration ratio is the sum of the market shares of the four largest firms in an industry. In this case, the largest firm has twice the market share of the second largest, which has twice the market share of the third largest, and so on. So, the market share of the largest firm is 2x, the market share of the second largest firm is x, the market share of the third largest firm is x/2, and so on. The four-firm concentration ratio is therefore 2x + x + x/2 + x/4 = 11x/4. Since there are 8 firms in the industry, the total market share is 100%. So, the four-firm concentration ratio is 11x/4 / 100% = 11x/400. Since x is unknown, we cannot calculate the exact four-firm concentration ratio. However, we can approximate it by assuming that x is equal to 10%. In this case, the four-firm concentration ratio would be 11x/400 = 11(10%)/400 = 2.75%.

Suppose There Are 8 Firms in an Industry, and Each