An industry has a single firm and is found to have violated antitrust laws. The government breaks it up into two firms that will share the market equally. The Herfindahl index for this industry would change from
A)100 to 50.
B)10,000 to 2,500.
C)100,000 to 50,000.
D)10,000 to 5,000.

Question

Quizplus · Accepted Answer

The Herfindahl index is calculated as the sum of the squares of the market shares of all firms in the industry. Initially, with a single firm, the index is 10,000 (100^2). After the breakup into two equal firms, each has a 50% market share, so the index becomes 5,000 (50^2 + 50^2).

An Industry Has a Single Firm and Is Found to Have