Question

Suppose there are three firms in a market. The largest firm has sales of $50 million, and each of the other two firms has sales of $25 million. The Herfindahl-Hirschman Index of this industry is:________.

a. 2,500.
b. 3,750.
c. 2,550.
d. 3,125.

Answer 1

b. 3,750.

Step-by-step explanation:

The computation of the Herfindahl-Hirschman Index of this industry is shown below:

Herfindahl-Hirschman Index of this industry is

= ($50 million) ^2 + ($25 million) ^2 + ($25 million) ^2

= $2,500 + $625 + $625

= $3,750 million

Hence, the correct option is b. $3.750

We simply do the above calculation so that the index could come