Question: An economy involves with a constant-returns, competitive sector Y, an imperfectly competitive sector producing a homogeneous good X, and a single factor of production L.

An economy involves with a constant-returns, competitive sector Y, an imperfectly competitive sector producing a homogeneous good X, and a single factor of production L. Suppose that there are two identical economies each with a monopoly producer of X. Show and explain how the opening of trade leads to gains from trade. Use the Cournot markup formula presented in class .

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