Question

1. The Herfindahl-Hirschman Index (HHI) tells us a ____________ market structure would have the largest measure.

   1. Perfect competition

   2. Oligopoly with many producers

   3. Natural monopoly

   4. Oligopoly with a few producers

Answer 1

The Herfindahl Hirschman Index (HHI) is a measurement used to understand the level of competition that exists within a market or industry, as well as give an indication of how the distribution of market share occurs across the companies included in the index. Understanding the level of market competition can be important for strategic planning as well as when trying to establish pricing for a company’s products or services. measures the market concentration of an industry's 50 largest firms in order to determine if the industry is competitive or nearing monopoly.Higher values of the index indicate higher market concentration and monopoly power as well as decreased competitiveness. For example, if there is only one firm in a market with 100 percent market share, then the value of the index would equal 10,000 (1002). The index decreases when a market is made up of a larger number of firms, each with a smaller market share. Hence monopoly have highest market share .

Hence ( C ) part is a correct answer