Question

What is the HHI for an industry where 5 firms each have a market share of 10% and 10 firms each have a market share of 5%?

Answer 1

The Herfindahl-Hirschman Index (HHI) for the industry with 5 firms each holding 10% of the market share and 10 firms each with 5% is calculated to be 750. This indicates a moderate level of market concentration.

Step-by-step explanation:

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration and is calculated by summing the squares of the individual market share percentages of all firms within the industry. In this case, we have an industry with 5 firms each having a market share of 10% and 10 firms each with a market share of 5%. To calculate the HHI for this industry, we square each firm's market share and then sum these values together.

To perform the calculation:

1. Square each 10% market share: 10% ² = 1% (or 100 when converted to whole numbers for calculation purposes).
2. Multiply this by the number of such firms: 5(100) = 500.
3. Square each 5% market share: 5% ² = 0.25% (or 25 when converted to whole numbers).
4. Multiply this by the number of such firms: 10(25) = 250.
5. Sum the results of the two groups of firms to get the total HHI: 500 + 250 = 750.

The HHI for this industry is 750, indicating a moderate level of market concentration. The HHI gives greater weight to larger firms, but in this case, the largest firms only hold 10% of the market each.

Answer 2

The HHI for the given industry is 750.

Step-by-step explanation:

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration in an industry and is calculated by summing the squares of the market shares of all the firms in the industry. To calculate the HHI, we square the market shares of each firm and sum them up. In this case, for an industry with 5 firms each having a market share of 10% and 10 firms each having a market share of 5%, the calculation would be:

1. (5 * (10²)) + (10 * (5²))
2. (5 * 100) + (10 * 25)
3. 500 + 250
4. 750

So the HHI for this industry would be 750.