total industry sales are $125 million. the top four firms account for sales of $8 million, $7 million, $6 million, and $5 million, respectively.

The concentration ratio reveals whether an industry is made up of numerous small enterprises or a few major ones. The market share of the four biggest companies in an industry, stated as a percentage, makes up the four-firm concentration ratio, which is a frequently used concentration ratio.

The market share of the eight biggest companies in an industry is taken into account when calculating the eight-firm concentration ratio, which is similar to the four-firm concentration ratio.

The market share percentages owned by the biggest specified number of firms in an industry are added to determine the concentration ratio. The concentration ratio, which goes from 0% to 100%, provides information about how competitive a given industry is.

The industry may be perfectly competitive if the concentration ratio is between 0% and 50%, which is regarded as a low concentration.

Here,

Four firm concentration ratios = % sales of the largest 4 firms in the industry

Four firm concentration ratios = (8 + 7 + 6 + 5)/125 x 100 = 20.8%

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