Question

An industry consists of three firms with sales of $250,000, $825,000, and $315,000. a. Calculate the Herfindahl-Hirschman index (HHI).

Answer 1

the HHI index is $4,360

Step-by-step explanation:

The computation of the HHI index is shown below:

= 10,000 × ($250,000 ÷ $1,390,000) ^2 + ($825,000 ÷ $1,390,000)^2 + ($315,000 ÷ $1,390,000)^2

= 10,000 × (0.032 + 0.352 + 0.051)

= $4,360

hence, the HHI index is $4,360

The $1,390,000 is the total of all three firms

And, the HHI index value is lied between from 0 to 10,000