Macroeconomics Essay Example | Topics and Well Written Essays - 1000 words - 1

Macroeconomics - Essay ideal exertion A Industry A has 20 firms and a (CR) of 20%. The Concentration Ratio is have-to doe with around how much of the market is controlled by the firms involved, in this case with 20 firms and a (CR) of 20% the controlled rank is low. (Concentration Ratio, 2011 p 1) This implies that the industry is either highly competitive industry. This means that every involved organization in this particular industry is able to enter and exit the market with low barriers. This industry type could be termed a complete(a) competition however, because it has a (CR) of 20% it is also close to an oligopoly. To be a perfect competition the characteristics would need to include, wholly firms selling the same products, all firms involved being price takers, all firms having a relatively itty-bitty market part, buyer knowing what is being sold and for how much and the energy to enter and exit the market. (Perfect Competition, 2011 p 1) In this environment the abili ty to enter the market with low to no barriers will allow for more competition to be available. The long term adjustments would need to be expecting cast down prices and normal profits. The (CR) will remain low in this industry model collect to greater competition. Industry B Industry B has 20 firms and a (CR) of 85% which places it in the oligopoly to monopoly range in moving in types. An oligopoly is characterized by a few dominant firms and many small ones, standardized and differentiated product depending on the industry, power of dominant firms over pricing, barriers to becoming a dominant firm and the use of non-price competition due to fear of price wars. (Petroff, 2002 para. 2) A monopoly however, is a situation where a single company or multitude owns the entire market, or close to it. Because this tends to mean it is a business that has a single firm it would non necessarily apply in this case. (Monopoly, 2011 p 1) To figure out the proper concentration ratio it is r equisite to use the Herfindahl-Hirschman Index, a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. (Herfindahl-Hirschman Index, ND) Conclusion Industry A would be clutch for a small business given the ability to enter and exit with relative ease. This however, should not brush off the possibility of Industry Bs ability to control a market and pricing as well. The entry barriers may be insurmountable in this industry type though the rewards could be significantly greater. Given the available information Industry A seems to be the best approach for a small business venture. Reference page Concentration Ratio,. (2011). Concentration ratio, investopedia.com. Retrieved from http//www.investopedia.com/ equipment casualty/c/concentrationratio.asp Herfindahl-Hirschman Index, . (ND). The herfindahl-hirschman index, justice.gov. Retrieved from http//www.justice.gov/a tr/public/testimony/hhi.htm Monopoly,. (2011). Monopoly definition, investopedia.com. Retrieved from http//www.investopedia.com/terms/m/monopoly.asp Perfect Competition,. (2011). Perfect competition, investopedia.com. Retrieved from http//www.investopedia.com/terms/p/perfectcompetition.asp Petroff, J. (2002). Oligopoly characteristics. Professional Educational Organization International Retrieved from http//www.peoi.org/Courses/mic/mic7.html memo follows- TO Managing director FROM (insert your name) DATE