Question

A market has five firms that each make up 20% of the market share. The Herfindalh-Hirschman Index of concentration for this market is _________

Answer 1

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. To calculate the HHI, square the market shares of all firms in the market and then sum them. In this case, with five firms each making up 20% of the market share, the HHI is 0.20.

Step-by-step explanation:

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. To calculate the HHI, we square the market shares of all firms in the market and then sum them. In this case, since there are five firms that each make up 20% of the market share, we can calculate the HHI as follows:

1. Square the market shares of each firm: (0.2)^2 = 0.04 for each firm
2. Sum the squared market shares: 0.04 + 0.04 + 0.04 + 0.04 + 0.04 = 0.20

Therefore, the Herfindahl-Hirschman Index of concentration for this market is 0.20.