Question

An industry is comprised of five firms with sales of $4 million, $5 million, $3.5 million, $6 million, and $2.5 million. What is the HHI? Round to the nearest unit.

2,099

2,166

1,964

2,248

2,047

Answer 1

Five firms with sales of $4 million, $5 million, $3.5 million, $6 million and $2.5 million

HHI is calculated as sum of square of market share of all firms.

Firm	Sales (million)	% of total sales	Square of % of total sales
1	$        4.00	19.05%	362.90
2	$        5.00	23.81%	566.92
3	$        3.50	16.67%	277.89
4	$        6.00	28.57%	816.24
5	$        2.50	11.90%	141.61
	$      21.00		2,165.56

HHI = 2,165 or 2,166

Option B is correct.