Based only on the knowledge that the premerger market share of two firms proposing to merge was 30 percent each, an economist working for the Justice Department was able to determine that, if approved, the postmerger HHI would increase by 1,800. Which of the following equations is a general rule explaining how the Herfindahl-Hirschman index is affected when exactly two firms (Firm i and Firm j) in the market merge, where Si is the market share of firm i and Sj. is the market share of firm j? (Hint: Compare a2 + b2 with (a + b)2.)
1) (10,000)(Si)(Sj)
2) (20,000)(Si)(Sj)
3) (10,000)((Si) + (Sj))
4) (20,000)((Si) + (Sj))
Please tell me which equation is answer.