Suppose that there are two industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are four firms in industry B with equal sales of $2.5 million for each firm. The HHI for industry B is:

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm in the industry and then summing the squares. In industry B, each firm has a market share of 25% (since $2.5 million out of a total of $10 million). The HHI is calculated as 4 * (25^2) = 4 * 625 = 2,500.

Suppose That There Are Two Industries, a and B