Suppose that three firms make up the entire wig manufacturing industry. One has a 40% market share, and the other two have a 30% market share each. The Herfindahl index of this industry is _. Suppose Mane Attraction, one of the firms with a 30% market share in the wig manufacturing industry, leaves the market. This would cause the Herfindahl index for the industry to _. The largest possible value of the Herfindahl index is 10,000 because: O An index of 10,000 corresponds to 100 firms with a 1% market share each O An industry with an index higher than 10,000 is automatically regulated by the Justice Department O An index of 10,000 corresponds to a monopoly firm with 100% market share

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16-12-2022
Business

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Suppose that three firms make up the entire wig manufacturing industry. One has a 40% market share, and the other two have a 30% market share each. The Herfindahl index of this industry is _. Suppose Mane Attraction, one of the firms with a 30% market share in the wig manufacturing industry, leaves the market. This would cause the Herfindahl index for the industry to _. The largest possible value of the Herfindahl index is 10,000 because: O An index of 10,000 corresponds to 100 firms with a 1% market share each O An industry with an index higher than 10,000 is automatically regulated by the Justice Department O An index of 10,000 corresponds to a monopoly firm with 100% market share

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Diatrhi Diatrhi · Answer 1 · 2022-12-20T02:40:53+01:00

Based on the Herfindahl-Hirschman Index:

The Herfindahl-Hirschman index for this industry is 3,400
Suppose Mane Attraction leaves the market, the Herfindahl index for the industry will increase
The largest possible value of the Herfindahl index is 10,000 because an index of 10,000 corresponds to a monopoly firm with 100% market share (C)

Herfindahl-Hirschman index or HHI measures the market concentration and determines market competitiveness. HHI is calculated by squaring the market share of each firms in the market and summing the resulting numbers.

A low degree of market concentration reflects the industry is closer to a perfect competition scenario where many firms with equal sizes share the market. Higher Herfindahl index represents a lower market competition and higher market power.

To find the Herfindahl index, we have to use HHI formula:

HHI = S₁² + S₂² + S₃²

where:

S₁ = 40

S₂ = 30

S₃ = 30

Hence:

HHI = S₁² + S₂² + S₃²

HHI = (40)² + (30)² + (30)²

HHI = 1,600 + 900 + 900

HHI = 3,400

If Mane Attraction leaves the maarket, the Herfindahl Index for the industry will increase indicating less competition in the market. When a competitor exits the market, the remaining firms within the market will experience increase in their market shares, resulting in increase of HHI.

The largest possibel value of Herfindahl index is 10,000 because this condition will occur when a monopoly firm has 100% market share. Let's prove this assumption:

HHI = S₁²

HHI = (100)²

HHI = 10,000 --> proven!

Learn more about Herfindahl-Hirschman Index here: https://brainly.com/question/24406916

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