Question: Assume that there are two countries (A and B) that produce product X. The demand functions are as follows: P A = 80 - 2Q

Assume that there are two countries (A and B) that produce product X. The demand functions are as follows:

P_A = 80 - 2Q_A P_B = 140 - Q_B

There is only one firm in each country. Firm a operates in Country A, and Firm b operates in Country B. The marginal cost is the same for all firms and is equal to $20.

a) Find the autarky equilibrium prices and quantities.

b) Assume free trade. What would be the quantity of exports?

c) Which firm benefits from free trade, Firm a or Firm b? Why?

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