An industry composed of four identical firms is likely to have a Herfindahl-Hirschman Index of ________.

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by adding up the squares of each firm's market share in the industry. In this case, since there are four identical firms, each firm would have a market share of 25% (100%/4). Thus, the HHI would be:
HHI = (0.25)^2 + (0.25)^2 + (0.25)^2 + (0.25)^2
HHI = 0.0625 + 0.0625 + 0.0625 + 0.0625
HHI = 0.25
HHI is expressed as a number between 0 and 10,000, so the answer is D) 2,500.

An Industry Composed of Four Identical Firms Is Likely to Have