The inverse demands in the home and foreign country are p-a-y and p*-a-y*, where y and...

 

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The inverse demands in the home and foreign country are p-a-y and p*-a-y*, where y and y* are the per capita quantities consumed. There are L consumers in the home country and L* consumers in the foreign country. (i) firms are competitors; (ii) marginal production cost and transportation cost are zero; (iii) fixed cost is "F" in both countries. Question: Explore how moving from autarky to free trade affects the total number of active firms and how it affects welfare (a Cournot Case). Explain the welfare analysis in terms of consumer welfare (i.e. consumer surplus), and producer welfare (profits). Please explain the step-by-step solution. The inverse demands in the home and foreign country are p-a-y and p*-a-y*, where y and y* are the per capita quantities consumed. There are L consumers in the home country and L* consumers in the foreign country. (i) firms are competitors; (ii) marginal production cost and transportation cost are zero; (iii) fixed cost is "F" in both countries. Question: Explore how moving from autarky to free trade affects the total number of active firms and how it affects welfare (a Cournot Case). Explain the welfare analysis in terms of consumer welfare (i.e. consumer surplus), and producer welfare (profits). Please explain the step-by-step solution.

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In autarky each country is isolated from the other and thus each firm in each country would be a monopolist The monopolist in the home country the dom... View the full answer