If the market share of the largest firm in an industry is 40 percent,then theoretically,the highest possible Herfindahl-Hirschman Index for this industry would be

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. If the largest firm has a 40% market share, the maximum HHI occurs when all remaining market share is held by a single firm, also with 40%. This gives us (0.40^2 + 0.40^2) * 10,000 = 3,200 + 3,200 = 6,400. However, the question asks for the highest possible HHI if the largest firm alone has 40%, implying other firms must exist and thus would have smaller shares. The highest possible HHI would be less than 6,400, making all provided options incorrect based on the explanation. However, assuming a misunderstanding in the explanation and focusing on the theoretical aspect where only the largest firm's share is considered, the calculation should be based on the scenario where the largest firm's share alone contributes to the HHI. The correct calculation for a single firm with 40% market share would be (0.40^2) * 10,000 = 1,600. Given the context of the question and the options provided, there seems to be a misunderstanding in the explanation process. The correct approach to find the highest possible HHI with the given information would involve considering the distribution of the remaining market share among other firms, which could lead to various HHI values but not explicitly provided in the options.

If the Market Share of the Largest Firm in an Industry