Suppose an industry is composed of seven producers with market shares given in the table that follows. Compute the Herfindahl-Hirschman index (HHI) for this market.
A) If firms B and C merge, how will this affect the HHI, all else equal?
B) Instead, if firm A splits into two equal-sized competing firms, how would this affect the HHI, all else equal?
Support your answers with specific calculations. Do your results make sense?
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