Consider two countries, i = {Spain, France} each having the following inverse demand function: P = 20 − 2Q Assume that there is only one firm in each country with the following cost function: TC = 2q Transport costs are absent. a) Start by considering a situation of autarky. Determine the equilibrium quantity and price in Spain. b) Compute total welfare in Spain under autarky (the sum of the consumer and producer surpluses). c) Now suppose that Spain opens up to international trade. Firms compete in quantities and transport costs are absent. In equilibrium determine (i) the quantity sold by the Spanish firm in Spain; (ii) the quantity sold by the French firm in Spain; (iii) the quantity sold by the Spanish firm in France; and (iv) the price of the good in Spain. d) Compute total welfare in Spain (the sum of the consumer and producer surpluses).
Consider two countries, i = {Spain, France}
each having the following inverse demand function: P = 20 − 2Q
Assume that there is only one firm in each country with the following cost function: TC = 2q
Transport costs are absent.
a) Start by considering a situation of autarky. Determine the
b) Compute total welfare in Spain under autarky (the sum of the
c) Now suppose that Spain opens up to international trade. Firms compete in quantities and transport costs are absent. In equilibrium determine (i) the quantity sold by the Spanish firm in Spain; (ii) the quantity sold by the French firm in Spain; (iii) the quantity sold by the Spanish firm in France; and (iv) the price of the good in Spain.
d) Compute total welfare in Spain (the sum of the consumer and producer surpluses).
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