An industry consists of three firms with equal annual sales.What is the industry's C₄?

Question

Quizplus · Accepted Answer

C₄ is the Herfindahl-Hirschman Index (HHI) which measures market concentration. Since there are three firms with equal sales, each firm has a market share of 1/3. When we square each of these market shares and add them together, we get HHI = (1/3)^2 + (1/3)^2 + (1/3)^2 = 1/9 + 1/9 + 1/9 = 1/3. Multiplying this by 3 to get C₄, we get C₄ = 1. Therefore, the best choice is C.

An Industry Consists of Three Firms with Equal Annual Sales