Suppose that there are two industries,A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are four firms in industry B with equal sales of $2.5 million for each firm. The HHI for industry B is:

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by summing the squares of the market shares of all firms in the industry, expressed as whole numbers. For industry B, with four firms each having equal sales of $2.5 million, each firm has a 25% market share (since they are equal and sum to 100%). Squaring this 25% (expressed as 25, not 0.25, for HHI calculation) gives 625 for each firm. Summing these for all four firms gives 4 * 625 = 2,500.

Suppose That There Are Two Industries,A and B