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CA Foundation · Business Economics · Price Determination in Different Markets

In a market, five firms have sales of ₹40 crore, ₹30 crore, ₹15 crore, ₹10 crore and ₹5 crore. Each sells a nearly identical product and entry is difficult. Based on the number of firms and their shares, which statement is correct?

This is a pure oligopoly with a four-firm concentration ratio of 95%. Total sales are ₹100 crore and the top four firms account for ₹95 crore. A few sellers of an identical product with difficult entry fits pure oligopoly, not competition or monopoly.

  1. AIt is a perfectly competitive market, since the product is identical
  2. BIt is a monopoly, since the largest firm has 40% share
  3. CIt is a pure oligopoly with a four-firm concentration ratio of 95%Correct
  4. DIt is a differentiated oligopoly with a four-firm concentration ratio of 85%

Explanation

Total sales are ₹100 crore. The top four firms have 40+30+15+10 = ₹95 crore, giving a ratio of 95%. A few firms, an identical product and difficult entry indicate pure oligopoly. The 85% option wrongly leaves out the 10 crore firm, and the product is not differentiated.

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