Question:
Consider an industry with six firms. An analyst collated the data for this industry as given below. The Herfindahl-Hirschman Index (HHI) for this industry will be ________ (in integer).Firm Market Share F1 30% F2 20% F3 15% F4 15% F5 10% F6 10%
Consider an industry with six firms. An analyst collated the data for this industry as given below. The Herfindahl-Hirschman Index (HHI) for this industry will be ________ (in integer).
| Firm | Market Share |
| F1 | 30% |
| F2 | 20% |
| F3 | 15% |
| F4 | 15% |
| F5 | 10% |
| F6 | 10% |
Updated On: Aug 21, 2025
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Correct Answer: 1950
Solution and Explanation
The Herfindahl-Hirschman Index (HHI) measures market concentration and is calculated by summing the squares of each firm's market share. Given the market shares for six firms, we calculate the HHI as follows:
Market shares:
Convert the HHI to an integer:
HHI = 0.195 × 10000 = 1950
The Herfindahl-Hirschman Index for this industry is 1950, which falls within the expected range of 1950 to 1950.
Market shares:
- F1: 30%
- F2: 20%
- F3: 15%
- F4: 15%
- F5: 10%
- F6: 10%
- F1: 0.30
- F2: 0.20
- F3: 0.15
- F4: 0.15
- F5: 0.10
- F6: 0.10
- F1: 0.30² = 0.09
- F2: 0.20² = 0.04
- F3: 0.15² = 0.0225
- F4: 0.15² = 0.0225
- F5: 0.10² = 0.01
- F6: 0.10² = 0.01
Convert the HHI to an integer:
HHI = 0.195 × 10000 = 1950
The Herfindahl-Hirschman Index for this industry is 1950, which falls within the expected range of 1950 to 1950.
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