The Herfindahl-Hirschman index equals ________ when ________ have (has) of the market.
A)10,000; four firms each; 25%
B)5,000; three firms each; 50%
C)5,000; two firms each; 50%
D)100,000; one firm; 100%

Question

Quizplus · Accepted Answer

The formula for Herfindahl-Hirschman index is the sum of the squares of the market shares of each firm in the industry. Therefore, the index will be greatest when there is a single dominant firm in the market. In this case, choice C has two firms with equal market shares of 50%, resulting in an index of 5,000. The other choices have more than two firms and/or lower market shares, resulting in lower index values.

The Herfindahl-Hirschman Index Equals ________ When ________ Have (Has) of the Market

The Herfindahl-Hirschman Index Equals When Have (Has) of the Market