Suppose there are 51 firms in a market.The largest firm has sales of $50 million and each of the other firms has sales of $1 million.The Herfindahl-Hirschman Index of this industry is

Question

Quizplus · Accepted Answer

The formula for calculating the HHI is the sum of the squares of the market shares of each firm in the industry. In this case, the largest firm has a market share of 50/101 = 0.495, and each of the other firms has a market share of 1/101 = 0.0099. Therefore, the HHI for this industry is:

HHI = (0.495^2 + 50*(0.0099)^2) + 50*(0.0099)^2*(50-1)
    = 0.245 + 12.25*(0.00009801) + 2450*(0.00009801)
    = 2.550

Therefore, the answer is C (2,550).

Suppose There Are 51 Firms in a Market