Question

An industry consists of five firms with annual sales of $130, $50, $40, $10 and $60....

An industry consists of five firms with annual sales of $130, $50, $40, $10 and $60. What is the industry's HHI?

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Homework Answers

Answer #1

Explanation:

HHI or Herfindahl-Hirschman Index is used to determine market competitiveness by measuring market concentration.

Calculating HHI- By squaring the market share of each firm competing in a market and then adding the squared numbers.

or, HHI=s12​+s22​+s32​+…sn2​

where, s ​= the market share percentage of firm (should be in whole numbers, not decimals)

Answer:

Given,

No. of firms in an industry = 5

Annual sales of each firm = $130, $50, $40, $10 and $60

Tabulating information to calculate the market share percentage of each firm and HHI-

Firm Annual Sales of each firm (In $) Market share of each firm (In %)

=(Annual sale of each firm/Industry sale)*100		 Square of Market share of each firm
A 130 45 2025
B 50 17 289
C 40 14 196
D 10 3 9
E 60 21 441
Total 290 100 2960

Or

Since HHI=s12​+s22​+s32​+…sn2​

HHI = 452+172+142+32+212

= 2025+289+196+9+441

= 2960

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