Question

1. Let the country of Coalistan have 7 coal producers, cleverly named A-G. Let A have 30% of the market, B have 20% of the market, and C through G each have 10% of the market. What is the herfindahl index for this market?

   		.09
   		.10
   		.18
   		.20
   		None of the above

Answer 1

Producer	Market share	Square of market share
A	0.30	0.09
B	0.20	0.04
C	0.10	0.01
D	0.10	0.01
E	0.10	0.01
F	0.10	0.01
G	0.10	0.01
-	Sum of squares of market shares	0.18

Herfindahl Hirschman Index is obtained as the sum of squares of market shares of all the firms in the market.

HHI = Sum of squares of market shares of all the firms = 0.3^2 + 0.2^2 + 0.1^2 + 0.1^2 + 0.1^2 + 0.1^2 + 0.1^2 = 0.09 + 0.04 + 0.01 + 0.01 + 0.01 + 0.01 + 0.01 = 0.18

Ans: 0.18