The Herfindahl-Hirschman Index _____.
A) takes into account the market share of all the firms in the market
B) is equal to 10,000 for a market with an infinite number of small firms
C) is equal to 0 for a market that is an effective monopoly
D) is smaller the more unequal the market shares of a group of firms
E) is negatively correlated with the concentration ratio

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index takes into account the market share of all the firms in the market, and is calculated by summing the squares of the market shares of all the firms in the market. It ranges from 0 for a market in which there are many small firms with equal market shares, to 10,000 for a market with a single firm that has a 100% market share. A higher value of the index indicates a more concentrated market.