1. FINAL RESEARCH STEP BEFORE STARTING A BUSINESS
Macroeconomics
ECON224-1104B-22
Victoria Rock
November 19, 2011

2. Introduction
In this research we looked into two different types of Industries and their Concentration Ratio.
When starting your own business there are a number of factors to consider. You can’t just say,
“Ok, I’m opening a business”, and then start producing and selling your product. One of the
first things to look into is how many companies are producing and selling the same kind of
product, and what the concentration ratio is and how it effects the industry you are going into.

3. Industry A
Industry A which has 20 firms and a concentration ratio of 30% would be considered a
monopolistic completion with the chance of running a monopoly. Four characterists of a
Monopoly are:
 One single firm selling all output in a market
 A unique product
 Restrictions on entry into and exit out of the industry
 Specialized information about production techniques unavailable to other potential
producers.
If an industry has these kinds of characteristics, then that industry has market control. A
monopolistic industry tends to fall short of each perfectly completive characteristic. (Monopoly,
Characteristics) There are many monopolistic competition companies. Although they sell the
same things they are perceived through commercials as being different. Some examples are in
the fast food industries such as McDonalds, Burger King, and Wendy’s.
When there is an increase in demand for a product that changes the price of goods, some
long run adjustments are expected. When it comes to the long run, the firms available in the
industry will be able to change the product scale and choose to either enter or leave the
industry. New firms will enter the industry to take advantage of the profits of scale which will
result to the down pressing of the market price to the long run equilibrium minimum average
cost. (Chapter 16: Monopplistic Competition and Product Differentiation) Due to the fact that
the industry experiences a monopolistic competition each firm has the power of setting their
prices to attract more customers. The adjustment process implies the relationship between the
industrial properties and the CR. The market exhibits the elements of both monopoly and
perfect competition when monopolistic competition occurs, especially when the CR is low. Low
CR wipes out temporary increase in price and drives the economy back to the long run
equilibrium level therefore creating a characteristic like competitive market. (Chapter 16:
Monopplistic Competition and Product Differentiation)

4. Industry B
An industry with 20 firms and a concentration ratio of 80% is referred to as a high
concentration industry. This is due to the fact the industry lies within the 0 to 50 percent
concentration ratio. This type of industry is referred to as an Oligopoly and mostly government
regulations are concerned with industries which are within this category. There are three
characteristics of an Oligopoly industry and they are:
 An industry dominated by a small number of large firms
 Firms sell either identical or differentiated products
 The industry has significant barriers of entry
If a company has these kinds of characteristics have an inclination to keep prices rigged and
has the pursuit of non-price competition instead of price competition. (Oligopoly,
Characteristics)
Firms in this form of industry attain and retain market control through barriers of entry. The
most noted entry barriers are:
 Exclusive resource ownership
 Patents and copy
 Government restrictions
 High start-up cost
Because of these barriers it is much harder to enter and existing firms maintain greater
market control. Some examples of an oligopoly industry include the steel industry, aluminum,
film, television, cell phone companies and gas. (Chapter 15: Oligopoly)

5. Conclusion
The market shares of the largest firms in the industry determine if the industry will either
have low concentration or high concentration. Industry A has a low concentration of 30% since
the largest firm in the industry has a smaller market share compared to the largest firm in
industry B. This is the reason why industry B has a higher market concentration. It is possible
for smaller firms to thrive and make profits in an industry with a higher concentration. With
the right exposure and strategies, as well as the right attitude will make it easier for a smaller
firm to work with larger firms in terms of goods or services offered.

6. Reference
"Chapter 15: Oligopoly." Krugman, P. & Wells, R. Economics. New York: Worth Publishers, 2009. 387-
414.
"Chapter 16: Monopplistic Competition and Product Differentiation." Krugman, P. & Wells, R.
Economics. New York: Worth Publishers, 2009. 415-432.
Monopoly, Characteristics. n.d. 17 November 2011. <http://www.amosweb.com/cgi-
bin/awb_nav.pl?s=wpd&c=dsp&k=monopoly,+characteristics>.
Oligopoly, Characteristics. n.d. 18 November 2011. <http://www.amosweb.com/cgi-
bin/awb_nav.pl?s=wpd&c=dsp&k=oligopoly,+characteristics>.