If the market share of the largest firm in the dental insurance field were 20%,then theoretically the highest possible Herfindahl-Hirschman Index in this field would be

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the percentage market share of each firm in the industry and then summing those numbers. In this case, if the largest firm has a market share of 20%, then we can assume that the other firms in the industry have smaller market shares. Therefore, if we assume that there are at least 5 firms in the industry, each with a market share of 1%, then the HHI would be 20^2 + 4(1^2) = 400 + 4 = 404. However, the question asks for the highest possible HHI, so we need to assume that there are more firms in the industry with even smaller market shares. If we assume that there are 200 firms in the industry, each with a market share of 0.1%, then the HHI would be 20^2 + 200(0.1^2) = 400 + 2 = 2,000. Therefore, the highest possible HHI in this field would be 2,000, making choice C the correct answer.

If the Market Share of the Largest Firm in the Dental