question archive The _____ the Herfindahl-Hirschman Index (HHI), the _____ the industry
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The _____ the Herfindahl-Hirschman Index (HHI), the _____ the industry.
A. higher; more firms in
B. lower; more profitable
C. lower; less competitive
D. higher; less competitive
The Herfindahl-Hirschman Index (HHI) is a method used by economists to measure the competition within an industry. The HHI is often used as an alternative for the concentration ratio. This index ranges between 10,000 which implies a pure monopoly and 0 which implies an infinite number of firms. Therefore, a high HHI means that there are not many firms in the industry indicating that it is not very competitive. In conclusion, the correct answer is option D.
Option A. is incorrect because if the HHI is high, there are fewer firms. Options B and C. are also incorrect because a low HHI means that there are many firms, more competition, and as a consequence, the industry is not very profitable.