The Herfindahl index for an industry is 2,550. Which of the following sets of market shares and industry with four firms would produce such an index?

Question

Quizplus · Accepted Answer

To calculate the Herfindahl index, we need to square the market shares of each firm, and then sum them up. 
For option A: 
(0.2)^2 + (0.2)^2 + (0.3)^2 + (0.3)^2 = 0.14
For option B: 
(0.25)^2 + (0.25)^2 + (0.25)^2 + (0.25)^2 = 0.125
For option C: 
(0.2)^2 + (0.25)^2 + (0.25)^2 + (0.3)^2 = 0.155
For option D:
(0.1)^2 + (0.2)^2 + (0.3)^2 + (0.4)^2 = 0.3

Only option C gives us a Herfindahl index of 2,550.

The Herfindahl Index for an Industry Is 2,550