The Herfindahl index for an industry is 3,000. Which of the following sets of market shares and industry with four firms would produce such an index?

A) lose $150 million in profit and firm A will gain $25 million in profit.
B) gain $75 million in profit and firm A will lose $50 million in profit.
C) gain $25 million in profit and firm A will gain $150 million in profit.
D) gain $25 million in profit and firm A will lose $50 million in profit.

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rachel trujillo · Accepted Answer

Final Answer : C, Explanation :  The Herfindahl index is calculated by summing the squares of the market shares of each firm in the industry. In this case, the Herfindahl index is 3,000, which means that the sum of the squares of the market shares of the four firms in the industry is 3,000.The only set of market shares that produces a Herfindahl index of 3,000 is:Firm A: 50%Firm B: 25%Firm C: 15%Firm D: 10%This is because the sum of the squares of these market shares is 3,000:(0.5)^2 + (0.25)^2 + (0.15)^2 + (0.1)^2 = 3,000

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