The Herfindahl index is a measure of concentration in an industry and is calculated by summing the squares of the market share of each firm in the industry. It provides a more nuanced view of industry concentration than concentration ratios, which only consider the market share of the largest firms. The higher the Herfindahl index, the more concentrated an industry is.

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The Herfindahl Index

Question 61

Multiple Choice

The Herfindahl index

A) measures the degree of concentration in an industry.
B) is the square of the sum of the market shares of each firm in the industry.
C) is not subject to any of the criticisms of the concentration ratios.
D) is the sum of the market shares of the largest four firms in an industry.

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