Question

Suppose that three firms make up the entire tire manufacturing industry. One has a 40% market share, and the other two have a 30% market share each. The Herfindahl index of this industry is . Tread Tough, one of the firms with a 30% market share in the tire manufacturing industry, leaves the market. This would cause the Herfindahl index for the industry to .

Answer 1

3400

increase

Step-by-step explanation:

the Herfindahl index is used to calculate the concentration of firms in an industry

The HHI is calculated by squaring the market share of each firm in the industry.

40² + 30² + 30² = 3400

If one of the firms leaves the industry, the industry becomes more concentrated and the HHI index would increase