Final answer:
The Herfindahl-Hirschman Index (HHI) for this industry is 3505, calculated by summing the squares of the market shares of the individual firms within the industry, revealing a moderately high level of market concentration.
Step-by-step explanation:
The Herfindahl-Hirschman Index (HHI) is used to measure the level of competition within an industry and to determine the degree of market concentration. To calculate the HHI, you square the market share of each firm within the industry and then sum these values.
In this scenario, Firm 1 has a 50% market share, Firm 2 has 30%, Firm 3 has 10%, and 20 remaining firms each have 0.5% (since they evenly divide the remaining 10% of the market). Therefore, the HHI is calculated as follows:
(50%)^2 = 2500
(30%)^2 = 900
(10%)^2 = 100
20 firms each with (0.5%)^2 = 20*(0.25) = 5
Adding these up: 2500 + 900 + 100 + 5 = 3500. The result shows that the HHI for this industry is 3505, indicating a moderately high level of concentration, as HHI values range from close to 0 to a maximum of 10,000 (which would be a monopoly).
The Herfindahl-Hirschman Index (HHI) is a measure of market concentration in an industry. It is calculated by summing the squares of the market shares of each firm in the industry. In this case, we have three firms: Firm 1 with 50% market share, Firm 2 with 30% market share, and Firm 3 with 10% market share.
To calculate the HHI, we square the market share of each firm:
HHI = (50^2) + (30^2) + (10^2)
Simplifying this equation, we get:
HHI = 2500 + 900 + 100 = 3500
Therefore, the Herfindahl-Hirschman Index for the industry is 3500, which indicates a moderately concentrated market.