The Herfindahl index is a measure of
A) profitability in an industry.
B) the price level in an industry.
C) the costs in an industry.
D) market power in an industry.

Question

Quizplus · Accepted Answer

The Herfindahl index is a commonly used measure of market concentration that takes into account the size distribution of firms in an industry. It is calculated by summing the squares of the market shares of each firm in the industry. The resulting score can range from close to zero for a highly competitive industry with many small firms, to close to 10,000 for a monopoly. A higher score indicates greater market power or concentration, which can lead to higher prices and reduced competition. Therefore, the Herfindahl index is primarily used as a measure of market power in an industry.

The Herfindahl Index Is a Measure of