Question: Read the The Monopolistic Competition CC-PP Model (A) For the monopolistic competition model studied in the online manual, based on Krugman, Obstfeld and Melitz (2012),

Read the “The Monopolistic Competition CC-PP Model”

(A) For the monopolistic competition model studied in the online manual, based on Krugman, Obstfeld and Melitz (2012), the firm’s individual demand curve is specified as

Q = S[ 1/n – b(P – P*)]. Derive the equations for the CC curve [or the AC(n) curve].
(B) For the same monopolistic competition model, derive the equations for the PP curve [or P(n) curve].
(C) Illustrate graphically the long-run equilibrium for the industry, assuming that total industry sales, S, are constant. What is the effect of a larger market [increase in S] with international trade? What are the gains from trade in this model?
(D) The monopolistic competition model in question 4(A) assumed that all firms had the same costs. What is the effect of allowing for different costs among firms?

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