Answer: Please refer to Explanation.
Explanation:
Hello. Your question is a tad unclear so I added a picture with the whole question.
I) The way to find the herfindahi index is to take the sum of squares of market shares of all firms in the market
In this scenario therefore we can work it out like this,
Herfindahi index = (50)^2 +(25)^2 + (25)^2
= 3750
The Herfindahi Index is 3750
ii) When there is a new entry into the market, it signifies a rise in competition. This will cause the Herfindahi Index to FALL. Using Abe's bike as an example. Let's say they captured 5% from each firm.
That would mean then that the index is,
Herfindahi index = (45)^2 +(20)^2 + (20)^2 + (15)^2
= 3,050
III) 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
A monopoly would have a 100% market share. This would mean then that of the Herfindahi Index was calculated for it, it would come to 10,000. A Monopoly with 100% signifies the highest amount of the market that can be taken. Anything above 10,000 is implausible.
