An industry is composed of four firms: Firms A,B,C,and D.Firm D is twice as large as C.Firm C is twice as large as B.Firm B is twice as large as A.This industry is likely to have a Herfindahl-Hirschman Index of ________.

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. It is calculated by summing the squares of the market shares of all firms in the industry. In this case, the market shares of the four firms are:Firm A: 1/8Firm B: 2/8Firm C: 4/8Firm D: 8/8The HHI is therefore:HHI = (1/8)^2 + (2/8)^2 + (4/8)^2 + (8/8)^2 = 3,000

An Industry Is Composed of Four Firms: Firms A,B,C,and D