Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent, respectively. The Herfindahl index for the industry is

Question

Quizplus · Accepted Answer

To calculate the Herfindahl index, we need to square the market share of each firm, and then sum these values.

For this industry, the calculation is as follows:

(0.3)^2 + (0.3)^2 + (0.2)^2 + (0.1)^2 + (0.1)^2 = 0.09 + 0.09 + 0.04 + 0.01 + 0.01 = 0.24

Therefore, the Herfindahl index for this industry is 2400, which is option B.

Suppose the Firms in a Five-Firm Industry Have Market Shares