Answer to Question #83769 in Macroeconomics for Ashish Kamble

Question

Fort Inc., competes against many other firms in a industry. Over the last decade, several firms have entered this industry and, as consequences, Fort is earning a return on investment that roughly equals the interest rates. Furthermore, the four-firm concentration ratio and Herfindahl Hirschman index are both quite small. Based on this information, which market structure best characterizes the industry in which Fort competes? Explain the characteristics this market structure and what happens to the Fort Inc’s profit in the short-run and long-run. What are your strategic advices to Fort Inc. to sustain its profit in the long-run?

Answer 1

Based on this information the market structure that best characterizes the industry in which Fort competes is perfect competition. The Fort Inc’s can receive profit in the short-run, but in the long-run all the firms will receive normal (zero) profits, because the number of firms will increase and the market price will decrease. There are no strategic advices to Fort Inc. to sustain its profit in the long-run, if the industry continues to be perfectly competitive.