The Herfindahl-Hirschman index is a measure of:

a. The degree of concentration among firms in a market,

b. Market size,

c. The degree of collusion among firms in a market,

d. The profit margin of an industry.

• The correct answer is a. The degree of concentration among firms in a market.

The Herfindahl-Hirschman Index, also known as the HHI index, is one of the alternatives used by economists to measure the market concentration of the industry. That is to say, it is used as an indicator to evaluate the market share of the firms in an industry. Generally, the market share is based on the sales percentage. This index is used in oligopolistic markets to know the market power and influence that some firms have on the market. Therefore, the correct answer is option a. In contrast, the market size is measured by the number of potential consumers. The collusion among firms is not measured by the HHI. And the profit margin is measured by the division of net profit and revenue.