Question

an industry consists of four firms with sales of $200,000, $350,000, $450,000 and $500,000. Calculate the HH Index and the four-firm concentration ratio.

Answer 1

Solution:-Total sales of the industry=$200,000+$500,000+$350,000+$450,000=$1,500,000

Firm A: $200,000/$1,500,000=0.13

Firm B: $350,000/$1,500,000=0.23

Firm C: $450,000/$1500,000=0.30

Firm D: $500,000/$1500,000=0.33

HHI=10000{(0.13)2+(0.23)2+(0.30)2+(0.33)2}=10000 (0.0169 + 0.0529 + 0.0900+0.1089 )=10000 X 0.2687=2687

Since HHI>2500, this industry is highly concentrated.

The C4 is ascertained by main four organizations in piece of the pie.

On the other hand, there are four organizations exist in the business, C4=$10000x($200,000/$1500,000+$350,000/$1500,000+$450,000/$1500,000+$500000/150000)=$2687

The four-firm concentration ratio=$2687