Answer :
The Herfindahl-Hirschman Index (HHI) for the given companies is 0.1529, which indicates a relatively low level of market concentration and suggests a moderately competitive industry.
The Herfindahl-Hirschman Index (HHI) is a measure of market concentration that is commonly used to assess the level of competition in an industry. It is calculated by summing the squares of the market shares of all firms in the industry. In this case, we need to calculate the HHI based on the annual revenues of the companies mentioned.
To calculate the HHI, we first need to find the market share of each company. We can do this by dividing the annual revenue of each company by the total annual revenue of all the companies.
The total annual revenue of all the companies is $125 + $90 + $84 + $73 + $30 + $22 + $22 + $22 + $17 = $505.
Next, we calculate the market share for each company:
Company A: $125 / $505 = 0.2475
Company B: $90 / $505 = 0.1782
Company C: $84 / $505 = 0.1663
Company D: $73 / $505 = 0.1446
Company E: $30 / $505 = 0.0594
Company F: $22 / $505 = 0.0436
Company G: $22 / $505 = 0.0436
Company H: $22 / $505 = 0.0436
Company I: $17 / $505 = 0.0337
Now, we square each company's market share and sum them up:
HHI = (0.2475)^2 + (0.1782)^2 + (0.1663)^2 + (0.1446)^2 + (0.0594)^2 + (0.0436)^2 + (0.0436)^2 + (0.0436)^2 + (0.0337)^2
HHI = 0.0612 + 0.0318 + 0.0276 + 0.0209 + 0.0035 + 0.0019 + 0.0019 + 0.0019 + 0.0011
HHI = 0.1529
The Herfindahl-Hirschman Index (HHI) is a measure of market concentration used to assess competition in an industry. It is calculated by summing the squares of the market shares of all firms. In this case, the HHI was calculated based on the annual revenues of the companies, resulting in an index value of 0.1529. This indicates a moderately competitive industry with a relatively low level of market concentration.
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