Herfindahl-Hirschman Index (HHI) - a value frequentlyused to measure industry concentration.

a) Using the provided formula, find the HHI for twoindustries where 4 firms share the market. In industry A the 4firms all have equal shares (i.e. 25% each). In industry B, 1 firmhas a 70% share and the other 3 have 10% each.

b) Compare the two values, what does it tell us aboutconcentration in each industry, and what might it tell us about thelevel of competition in each industry.

1 i=1 2