Question 2: Monopolistie Competition (25 points, 5 points for each) The marginal and average cost curves facing a rm are drawn in the following diagram. Pc Panel A: NoTrade Panel B: Trade Price A C AC MC MC Quantity Quantity a) In panel A, draw demand curves DIN and d, a marginal revenue curve, and the level of the optimal price and quantity for a rm in a long-run no-trade equilibrium. In panel B, draw demand curves DIN and d, a marginal revenue curve, and the level of the optimal price and quantity for a rm in a long run trading equilibrium for the case of the two identical countries. b) List all the points about how the two panels are drawn differently. Explain for each point why the two panels are different? Specically, explain the change in equilibrium price, quantity, the curve d and DfN. c) Should the curve d be tangent to the average cost curve in the longrim equilibrium? Explain why or why not. More specically, explain what would happen if the curve :1 is not tangent to the average cost curve. Show your argument in the following gure. Pric d) What are the gains from trade, and how do they appear graphically in panel b? e) What are the adjustment costs associated with international trade and how do they appear graphically in panel I)