If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is
A) 10,000.
B) 2,500.
C) 3,750.
D) 1,000.

Question

Quizplus · Accepted Answer

The Herfindahl index is calculated by summing the squared market shares of each firm. In this case, since each of the four firms has equal percentage of sales (25%), the squared market share for each firm would be (0.25)^2 = 0.0625. Adding up the squared market shares of each firm (0.0625 x 4) would give us a Herfindahl index of 0.25, or 2,500.

If the Four-Firm Concentration Ratio in an Oligopolistic Industry Is