Assume six firms composing an industry have market shares of 35, 25, 15, 10, 10, and 5 percent. The Herfindahl index for this industry is

A) 2,175.
B) 2,300.
C) 1,225.
D) 85.

Question

Assume six firms composing an industry have market shares of 35, 25, 15, 10, 10, and 5 percent. The Herfindahl index for this industry isA) 2,175.B) 2,300.C) 1,225.D) 85.

Brooke Wardhaugh · Accepted Answer

Final Answer : B, Explanation :   The Herfindahl index is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For this industry, the calculation would be:   3 5 2 + 2 5 2 + 1 5 2 + 1 0 2 + 1 0 2 + 5 2 = 1225 + 625 + 225 + 100 + 100 + 25 = 2300 35^2 + 25^2 + 15^2 + 10^2 + 10^2 + 5^2 = 1225 + 625 + 225 + 100 + 100 + 25 = 2300 3 5 2 + 2 5 2 + 1 5 2 + 1 0 2 + 1 0 2 + 5 2 = 1225 + 625 + 225 + 100 + 100 + 25 = 2300  .

Assume six firms composing an industry have market shares of 35, 25, 15, 10, 10, and 5 percent. The Herfindahl index for this industry is

A) 2,175.
B) 2,300.
C) 1,225.
D) 85.

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