Final answer:
The Herfindahl-Hirschman Index is a significant measure of a firm's competitive strength and is assigned a high importance weight in determining competitiveness.
Step-by-step explanation:
The Herfindahl-Hirschman Index (HHI) is a very telling measure of a firm's competitive strength vis-à-vis rival firms. It should be assigned a high importance weight in determining its competitive strength.
The HHI measures the extent of competition in a market by taking the market shares of all firms in the market, squaring them, and then summing the total. This calculation gives more weight to larger firms and can provide a more accurate representation of market concentration.
For example, if a market has a four-firm concentration ratio of 80, it could either indicate that five firms each control 20% of the market or that one firm holds 77% of the market and all other firms have 1% each. The HHI would help differentiate between these two scenarios, allowing a better understanding of the extent of competition.