An industry is made up of five firms.Three of the firms make up 20% of the total market sales,one firm makes up 25%,and the remaining firm makes up 15%.What is the HHI for this industry?

Question

Quizplus · Accepted Answer

HHI = (s1)^2 + (s2)^2 + ... + (sn)^2
where sn represents the market share of the nth firm.

Calculating the HHI for this industry:

HHI = (0.2)^2 + (0.2)^2 + (0.2)^2 + (0.25)^2 + (0.15)^2
HHI = 0.04 + 0.04 + 0.04 + 0.0625 + 0.0225
HHI = 0.1925

Since the HHI is less than 1,800, it indicates that this industry is competitive. Therefore, the correct answer is C.

An Industry Is Made Up of Five Firms