Suppose that Industry X has two firms with equal market shares, and Industry Y has three firms with 65 percent, 30 percent, and 5 percent market shares, respectively. Which of the following is true?
A) The HHI for Industry X is 50 higher than the HHI for Industry Y.
B) The HHI for Industry X is 150 lower than the HHI for Industry Y.
C) The HHI for Industry X is 100 higher than the HHI for Industry Y.
D) The HHI is the same between Industry X and Industry Y.

Question

Quizplus · Accepted Answer

The HHI for Industry X is 0.5^2 + 0.5^2 = 0.25 + 0.25 = 0.5 or 5000. The HHI for Industry Y is 0.65^2 + 0.3^2 + 0.05^2 = 0.4225 + 0.09 + 0.0025 = 0.515 or 5150. Therefore, Industry X's HHI is 150 lower than Industry Y's HHI.

Suppose That Industry X Has Two Firms with Equal Market