An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and $600, respectively.What is the industry's HHI?

Question

Quizplus · Accepted Answer

HHI (Herfindahl-Hirschman Index) is calculated by adding the squared market share of each firm in the industry. 
Market share of each firm = annual sales of the firm / total annual sales of the industry
Total annual sales of the industry = $300 + $500 + $400 + $700 + $600 + $600 = $3200
Market share of each firm = ($300/$3200)^2 + ($500/$3200)^2 + ($400/$3200)^2 + ($700/$3200)^2 + ($600/$3200)^2 + ($600/$3200)^2
= 0.028, 0.049, 0.025, 0.061, 0.046, 0.046
HHI = (0.028^2 + 0.049^2 + 0.025^2 + 0.061^2 + 0.046^2 + 0.046^2)*10,000 = 1,779
Therefore, the answer is option B.

An Industry Consists of Six Firms with Annual Sales of $300