Dorchester County has the following five banks in its market area:
$\begin{array} { l c }
\text { Bank } & \text { Total Assets } \
\text { First National Bank, NA } & \$ 1,500 \text { million } \
\text { Dorehester County Bank } & \$ 750 \text { million } \
\text { First State Bank } & \$ 500 \text { million } \
\text { Summerfield Bank } & \$ 250 \text { million } \
\text { Charlestown Bank } & \$ 250 \text { million } \
\text { All Banks } & \$ 3,250 \text { million }
\end{array}$
-There are 10 banks in a particular market area all with a market share of 10 percent.What is the Herfindahl-Hirschman Index for this market area?

Question

Dorchester County has the following five banks in its market area:
$\begin{array} { l c } 
\text { Bank } & \text { Total Assets } \
\text { First National Bank, NA } & \$ 1,500 \text { million } \
\text { Dorehester County Bank } & \$ 750 \text { million } \
\text { First State Bank } & \$ 500 \text { million } \
\text { Summerfield Bank } & \$ 250 \text { million } \
\text { Charlestown Bank } & \$ 250 \text { million } \
\text { All Banks } & \$ 3,250 \text { million }
\end{array}$
-There are 10 banks in a particular market area all with a market share of 10 percent.What is the Herfindahl-Hirschman Index for this market area?

Quizplus · Accepted Answer

The formula to calculate HHI is the sum of squared market shares of all firms in the market. In this case, there are 10 firms with equal market share of 10%, so the HHI would be 10^2 * 10 = 1,000. Therefore, the best choice is C.

Dorchester County Has the Following Five Banks in Its Market