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The Herfindahl-Hirschman Index (HHI) is a mathematical approach to understanding market concentration that provides a single concentration indicator. What is the HHI for an industry characterized by the below noted data?

a. Firm 1 has a market share of 40%
b. Firm 2 has a market share of 20%
c. Firm 3 has a market share of 15%
d. Firm 4 has a market share of 15%
e. Firm 5 has a market share of 10%

HHI=___

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Parrain

Answer: 2,550

Explanation;

The Herfindahl-Hirschman Index (HHI) is used to measure market saturation to see the concentration of a market. It ranges from around 0 to 10,000 and is calculated by squaring the market share of every firm in the market and then adding the squares up.

= 40² + 20² + 15² + 15² + 10²

= 1600 + 400 + 225 + 225 + 100

= 2,550

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