Question

An industry consists of three firms with sales of $300,000, $700,000, and $250,000. a. Calculate the Herfindahl-Hirschman index (HHI).

Answer 1

Answer:

4112

Explanation:

Calculation to determine the Herfindahl-Hirschman index (HHI)

First step is to calculate the Total sales of the industry

Total sales of the industry=$300,000+$700,000+$250,000

Total sales of the industry=1,250,000

Second step is to Allocate

Firm A= $300,000/$1,250,000

Firm A=0.24

Firm B= $700,000/$1,250,000

Firm B=0.56

Firm C=$250,000/$1250,000

Firm C=0.2

Now let calculate the Herfindahl-Hirschman index (HHI).

Herfindahl-Hirschman index (HHI)=1000*[(0.24)^2+(0.56)^2+(0.2)^2]

Herfindahl-Hirschman index (HHI)=10000*(0.0576 + 0.3136 + 0.04 )

Herfindahl-Hirschman index (HHI)=10000 * 0.4112

Herfindahl-Hirschman index (HHI)=4112

Therefore the Herfindahl-Hirschman index (HHI) is 4112