Question

Suppose you are an analyst and your job is to determine whether the orange juice market is competitive. to do this, you compute the herfindahl-hirschman index (hhi) and report it to your boss. if there are only 5 producers of orange juice and each supplies 200,000 cartons of juice in equilibrium, what is the hhi index for this industry?

a. 6000
b. 2000
c. 4000
d. there is not enough information to calculate

Answer 1

The Herfindahl-Hirschman Index (HHI) for an orange juice market with five producers each holding a 20% market share is 2000, which suggests a moderately concentrated market.

Step-by-step explanation:

To determine whether the orange juice market is competitive, one can calculate the Herfindahl-Hirschman Index (HHI). The HHI is computed by summing the squares of the market shares of each firm within the industry. Each of the five producers supplies an equal amount of orange juice, which implies they each have an equal market share of 20% (since 20% * 5 producers = 100% of the market). To find the HHI, you square the market share of each firm (in this case, 20% or 0.20) and then sum these values:

• HHI = 5 * (0.20)^2
• HHI = 5 * 0.04
• HHI = 0.20
• HHI = 2000 when converted into 'pure number' form without the percentage (multiplied by 10,000)

Therefore, the HHI for this industry is 2000, indicating a moderately concentrated market.