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Answer: The squared market shares of the firms in the industry.
The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market shares of each firm in the industry and summing the results. For instance, in a monopoly where one firm controls the entire market, the HHI equals 1. Conversely, in a market with `M` firms of equal size, the HHI is `(1/M)`. The HHI does not account for demand elasticity or the potential for new entrants, making options B and C incorrect.
Author: LeetQuiz Editorial Team
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