If there are five firms in an industry and the market shares of the firms are 35 percent,25 percent,20 percent,16 percent and 4 percent. The four-firm concentration ratio for this industry is __________________ percent and the Herfindahl Index is ________________.

Question

Quizplus · Accepted Answer

To calculate the four-firm concentration ratio, we add up the market shares of the top four firms, which in this case are 35 + 25 + 20 + 16 = 96 percent.

To calculate the Herfindahl Index, we square the market shares of each firm and add them up. In this case, the calculation looks like this:

(0.35)^2 + (0.25)^2 + (0.20)^2 + (0.16)^2 + (0.04)^2 = 0.1239

To convert this to an index, we multiply by 10,000, giving us an index of 1239. This is closest to choice C, which has an index of 2,522 (the choices given are not exact matches).

If There Are Five Firms in an Industry and the Market