Consider two countries, Home and Foreign that are freely trading in differentiated products. Each producer in...

 

Transcribed Image Text:

Consider two countries, Home and Foreign that are freely trading in differentiated products. Each producer in the industry is subject to increasing returns to scale, derived from fixed costs of production. In particular, the cost function of a firm in the industry is linear with respect to output, with fixed costs of 100 and variable costs of 20 per unit of output. The demand function for each differentiated product is equal to Q = S [ 1/2 - b (P-P)] where B-1.5, S is size of the market, P is the price charged by the producer, Pis the average price in the industry and n is the number of firms in the industry. There is free entry in the industry. Assume that the size of the market is 2000 in the Home country and 3000 in the Foreign country. [HINT (in case you need it): If the demand function is of the form: Q = A - BP, then MR = P - Q/B] Answer the following questions: a. Compute the equilibrium price that any producer will charge, as a function of the number of firms in the industry and the size of the market. b. Write down the average costs faced by any firm, as a function of the number of firms in the industry and the size of the market. Consider two countries, Home and Foreign that are freely trading in differentiated products. Each producer in the industry is subject to increasing returns to scale, derived from fixed costs of production. In particular, the cost function of a firm in the industry is linear with respect to output, with fixed costs of 100 and variable costs of 20 per unit of output. The demand function for each differentiated product is equal to Q = S [ 1/2 - b (P-P)] where B-1.5, S is size of the market, P is the price charged by the producer, Pis the average price in the industry and n is the number of firms in the industry. There is free entry in the industry. Assume that the size of the market is 2000 in the Home country and 3000 in the Foreign country. [HINT (in case you need it): If the demand function is of the form: Q =A - BP, then MR = P - Q/B] Answer the following questions: a. Compute the equilibrium price that any producer will charge, as a function of the number of firms in the industry and the size of the market. b. Write down the average costs faced by any firm, as a function of the number of firms in the industry and the size of the market. Consider two countries, Home and Foreign that are freely trading in differentiated products. Each producer in the industry is subject to increasing returns to scale, derived from fixed costs of production. In particular, the cost function of a firm in the industry is linear with respect to output, with fixed costs of 100 and variable costs of 20 per unit of output. The demand function for each differentiated product is equal to Q = S [ 1/2 - b (P-P)] where B-1.5, S is size of the market, P is the price charged by the producer, Pis the average price in the industry and n is the number of firms in the industry. There is free entry in the industry. Assume that the size of the market is 2000 in the Home country and 3000 in the Foreign country. [HINT (in case you need it): If the demand function is of the form: Q = A - BP, then MR = P - Q/B] Answer the following questions: a. Compute the equilibrium price that any producer will charge, as a function of the number of firms in the industry and the size of the market. b. Write down the average costs faced by any firm, as a function of the number of firms in the industry and the size of the market. Consider two countries, Home and Foreign that are freely trading in differentiated products. Each producer in the industry is subject to increasing returns to scale, derived from fixed costs of production. In particular, the cost function of a firm in the industry is linear with respect to output, with fixed costs of 100 and variable costs of 20 per unit of output. The demand function for each differentiated product is equal to Q = S [ 1/2 - b (P-P)] where B-1.5, S is size of the market, P is the price charged by the producer, Pis the average price in the industry and n is the number of firms in the industry. There is free entry in the industry. Assume that the size of the market is 2000 in the Home country and 3000 in the Foreign country. [HINT (in case you need it): If the demand function is of the form: Q =A - BP, then MR = P - Q/B] Answer the following questions: a. Compute the equilibrium price that any producer will charge, as a function of the number of firms in the industry and the size of the market. b. Write down the average costs faced by any firm, as a function of the number of firms in the industry and the size of the market.

Answer rating: 100% (QA)

Okay lets solve this stepbystep a Equilibrium price for any producer From th... View the full answer