Question

Suppose an industry is made up of 16 firms. Three firms each sell 12 percent of the industry's total output; another three firms each sell 8 percent; another five firms each sell 5 percent; and the last five firms each sell 3 percent. What is the eight-firm concentration ratio in this industry?

Answer 1

Answer: The eight-firm concentration ratio in this industry is 0,7.

Explanation: The concentration ratio measures the proportion of total production produced by, in this case, the first eight largest companies in an industry. It is calculated by dividing the market share of the first eight firms in the industry by the total market share.

So: The first 8 firms sell: 3 each 12%.  The next 3 each 8%.  And thirdly 2 firms each 5%.

Then we calculate: (3x12) + (3x8) + (2x5) = 70%  These companies represent 70% of the industry's total output.

So the concentration ratio is = $\frac{70}{100}$ = 0,7