Final answer:
The Herfindahl-Hirschman Index (HHI) for industry A, with market shares based on sales of several firms, is calculated by summing the squares of these market shares. The result for industry A is an HHI of 3200, which indicates that this is a moderately concentrated industry.
Step-by-step explanation:
To calculate the Herfindahl-Hirschman Index (HHI) for industry A, we need to follow the process of summing the squares of the market shares of each firm in the industry. Given that we have sales of $5 million, $2 million, $1 million, $1 million, and $1 million, we first need to determine the total market size, which in this case is $10 million ($5m + $2m + $1m + $1m + $1m).
- Firm 1: Market share is 50% (5/10), so its square is 2500 (50²).
- Firm 2: Market share is 20% (2/10), so its square is 400 (20²).
- Firms 3, 4, and 5: Each has a market share of 10% (1/10), and their squares are 100 each (10²).
Adding these together, the HHI for industry A is:
2500 (for Firm 1) + 400 (for Firm 2) + 100 (for Firm 3) + 100 (for Firm 4) + 100 (for Firm 5) = 3200.
Note that the HHI gives greater weight to large firms.