CFA Level I · CFA Level I Exam · The Firm and Market Structures
Four firms in a market have sales shares of 40%, 30%, 20% and 10%. The Herfindahl-Hirschman Index (HHI), using shares expressed as whole numbers, is closest to:
The HHI is about 3,000. Square each market share expressed as a whole number and add them: 40 squared is 1,600, 30 squared is 900, 20 squared is 400 and 10 squared is 100, which total 3,000.
- A1,000
- B3,000Correct
- C3,800
Explanation
HHI is the sum of squared shares: 1,600 + 900 + 400 + 100 = 3,000. The 1,000 option would be the sum of the shares added to 900 incorrectly, and 3,800 wrongly would arise from an arithmetic error; summing shares without squaring gives 100.
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