Could you answer #2 please? Thanks! 1. Reproduce the numerical example from the chapter on Monopolistic Competition in the book by Krugman & Obstfeld. If you do not have the book, here is the relevant information (the model and the equations are the same as those in the slides). Consider two countries, Home and Foreign, with the following market sizes: SH = 900,000 and SF = 1,600,000. The demand function for industry i is represented by Q = S[( 1 / n − 1 / 30,000) ∙ (Pi − P)] While the total cost function is represented by TC = 750,000,000 + 5,000 ∙ Q (a) Compute the long-run equilibrium price and the long-run number of varieties in Home and in Foreign under AUTARKY. (b) Compute the long-run equilibrium price and the long-run number of varieties in the integrated market when there is FREE TRADE. (c) Compare (a) and (b) and show that both countries are better off. 2. Now suppose that the two countries that we considered in the numerical example of the previous exercise were to integrate their automobile market with a third country, the third country having an annual market of 3.75 million automobiles. Find the number of firms the production per firm and the price per automobile in the new integrated market post trade.
Could you answer #2 please? Thanks!
1. Reproduce the numerical example from the chapter on
Q = S[( 1 / n − 1 / 30,000) ∙ (Pi − P)]
While the total cost function is represented by TC = 750,000,000 + 5,000 ∙ Q
(a) Compute the long-run
(b) Compute the long-run equilibrium price and the long-run number of varieties in the integrated market when there is FREE TRADE.
(c) Compare (a) and (b) and show that both countries are better off.
2. Now suppose that the two countries that we considered in the numerical example of the previous exercise were to integrate their automobile market with a third country, the third country having an annual market of 3.75 million automobiles. Find the number of firms the production per firm and the price per automobile in the new integrated market post trade.
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