Which Herfindahl-Hirschman Index (HHI) reflects an industry that is composed of 10 firms, each with 10% of the market

Rationale

The Herfindahl-Hirschman Index (HHI) for an industry with 10 firms, each holding 10% of the market, is 1,000.

The HHI is calculated by squaring the market share of each firm and then summing those squares. In this case, with 10 firms each having a 10% market share, the calculation would be \(10^2 + 10^2 + \ldots + 10^2\) (10 times), resulting in an HHI of 1,000.

A (10,000) YOUR ANSWER

This value suggests an industry with a single firm holding 100% of the market share, calculated as \(100^2\). Since the question specifies 10 firms with equal shares, this option does not apply to the scenario presented.

B (40) YOUR ANSWER

An HHI of 40 would imply very small market shares for firms, calculated as \( \text{(market share)}^2\) for a significantly larger number of firms. Given that each firm has 10% market share, this option does not correctly reflect the situation described.

C (1,000) CORRECT

This is the correct calculation for the HHI in this scenario. Each of the 10 firms has a 10% market share, leading to \(10 \times (10^2) = 1,000\). This accurately captures the concentration of the industry.

D (100) YOUR ANSWER

An HHI of 100 would suggest a scenario where there are only a few firms with very small market shares, not compatible with the equal distribution of market share among 10 firms each holding 10%.

Conclusion

The Herfindahl-Hirschman Index is a crucial measure of market concentration. In this case, the equal distribution of market shares among 10 firms yields an HHI of 1,000, indicating a moderate level of concentration. Other options either misinterpret market share distribution or suggest scenarios that do not align with the given details, reinforcing the importance of accurate calculations in economic analysis.

Which Herfindahl-Hirschman Index (HHI) reflects an industry that is composed of 10 firms, each with 10% of the market

The Herfindahl-Hirschman Index (HHI) for an industry with 10 firms, each holding 10% of the market, is 1,000.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test