An industry consists of four firms with annual sales of $300,$500,$400,and $600,respectively.What is the industry's HHI?

Question

Quizplus · Accepted Answer

HHI (Herfindahl-Hirschman Index) is calculated by adding the squared market shares of all the firms in the industry.

Market share of each firm = (annual sales of the firm / total annual sales of the industry) * 100

Market share of each firm:
Firm 1 = (300 / 1800) * 100 = 16.67%
Firm 2 = (500 / 1800) * 100 = 27.78%
Firm 3 = (400 / 1800) * 100 = 22.22%
Firm 4 = (600 / 1800) * 100 = 33.33%

HHI = (16.67^2 + 27.78^2 + 22.22^2 + 33.33^2) * 10,000 = 2,654
Therefore, the answer is B.

An Industry Consists of Four Firms with Annual Sales of $300,$500,$400,and