Figure 15-14
-A Herfindahl-Hirschman Index is calculated by
A) summing the amount of sales by the four largest firms and dividing by total industry sales.
B) dividing the number of firms wanting to merge by the total number in the industry.
C) summing the squares of the market shares of each firm in the industry.
D) summing the advertising expenditures of the firms that want to merge by total industry advertising expenditures.

Question

Figure 15-14 
-A Herfindahl-Hirschman Index is calculated by
A) summing the amount of sales by the four largest firms and dividing by total industry sales. 
B) dividing the number of firms wanting to merge by the total number in the industry. 
C) summing the squares of the market shares of each firm in the industry. 
D) summing the advertising expenditures of the firms that want to merge by total industry advertising expenditures.

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index is calculated by summing the squares of the market shares of each firm in the industry. Hence, the correct answer is option C. Option A is incorrect because it only considers the four largest firms and ignores the rest. Option B is incorrect because it does not involve any calculation with market shares. Option D is incorrect because it only considers advertising expenditures and ignores the market shares.

Figure 15-14 -A Herfindahl-Hirschman Index Is Calculated by