In an oligopoly with two firms, one firm's share of the market is 70 percent. The Herfindahl-Hirschman Index is
A) 4,900.
B) 0.7.
C) 5,800.
D) 100.

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm and summing the results. If one firm has 70% of the market, its contribution to the HHI is 70^2 = 4900. The other firm has 30% of the market, contributing 30^2 = 900. Therefore, the HHI is 4900 + 900 = 5800.

In an Oligopoly with Two Firms, One Firm's Share of the Market