You can do while assuming on your own,

Only part b required with graph

1. Suppose that widgets are produced by a monopolistically competitive industry. If each firm in this market has the same cost structure and charges the same price, then Q = S / n, Assume that the demand curve is such that b = 1 / 20.

The cost function for any given producer is given by:

TC = 3,000 + (4 x Q)

Suppose there are two countries Home and Foreign and Home has a market size S_H = 2,400 widgets and Foreign has market size S_F = 1,350 widgets. Assume that both countries have the same costs of production and demand curve.

A.

Find the equilibrium number of firms and the equilibrium price and quantity in the long run for each country in the absence of trade.

Home: n = ______ P = _______ Q = _______

Foreign: n = ______ P = _______ Q = _______

B. Find the equilibrium number of firms and the equilibrium price and quantity in the long run with trade. Assume that the integrated market is the sum of the individual markets. Graph your results and show the gains from trade for these two countries.

Under trade: n = ______ P = _______ Q = _______

Graph:

Only part b required with graph