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The __________ exaggerates the differences between focused and diversified firms

  • A.mixed offering
  • B.LBO
  • C.Herfindahl Index (HI)
  • D.ESOP

Answer: C

Correct answer: Herfindahl Index (HI)

The Herfindahl index sums the squares of the shares, so it weights large segments far more heavily than small ones. A firm with one dominant business and several small ones therefore scores close to a single-segment firm, while a genuinely diversified firm scores much lower, and the gap between the two is wider than the underlying difference in diversification. That squaring is what exaggerates the contrast.

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