Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5, and 4 percent. The remaining 20 firms each have market shares of 2 percent. The Herfindahl index for this industry is

Question

Quizplus · Accepted Answer

The formula to calculate the Herfindahl Index is the sum of squared market shares of all firms in the industry. Therefore, the calculation is:
(0.10^2) + (0.08^2) + (0.08^2) + (0.05^2) + (0.05^2) + (0.04^2) + (20 x 0.02^2) = 0.374 or 374 (in percentage terms). Therefore, the correct answer is C. This index measures the concentration of the market, where a higher value indicates a higher concentration.

Assume the Top Six Firms Comprising an Industry Have Market