Question

Suppose the Herfindahl indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that: Group of answer choices industry A is more monopolistic than industry C. market power is greatest in industry B. market power is greatest in industry A. market power is greatest in industry C.

Answer 1

Answer: market power is greatest in industry C.

Explanation:

The Herfindahl–Hirschman Index, is the measure of market concentration. It is calculated by squaring the market share of every firm that is competing in the market after which the resulting numbers will be added.

A market that has an HHI of less than 1,500 is said to be a competitive marketplace. A market that has an HHI of 1,500 to 2,500 is said to be moderately concentrated while a market that has an HHI of 2,500 or more is said to be highly concentrated. Therefore, the industry with the highest Herfindahl indexes here is industry C with 5000 and it has the most market power.