Suppose that fixed costs for a firm in the automobile industry (start-up costs of factories, capital equipment, and so on) are 50 and that variable costs are equal to 20 per finished automobile. Because more firms increase competition in the market, the market price falls as more firms enter and automobile market, or specifically, P-20 + (1/2n) , where "n" represents the number of firms in a market. Assume that the initial size of the US and the European automobile markets are 900 and 1,600 people, respectively. a. Calculate the equilibrium number of firms in the US and European automobile markets without trade. Explain. b. What is the equilibrium price of automobiles in the US and Europe if the automobile industry is closed to foreign trade? Explain. c. Now suppose that the US decides on free trade in automobiles with Europe. How many automobile fırms will there be in the US and in Europe combined? What will be the new equilibrium price of automobiles? Explain. d. Why are prices in the US different with and without trade? Are consumers better off or worse off with trade? In what ways?

Suppose that fixed costs for a firm in the automobile industry (start-up costs of factories, capital equipment, and so on) are 50 and that variable costs are equal to 20 per finished automobile. Because more firms increase competition in the market, the market price falls as more firms enter and automobile market, or specifically, P-20 + (1/2n) , where "n" represents the number of firms in a market. Assume that the initial size of the US and the European automobile markets are 900 and 1,600 people, respectively. a. Calculate the equilibrium number of firms in the US and European automobile markets without trade. Explain. b. What is the equilibrium price of automobiles in the US and Europe if the automobile industry is closed to foreign trade? Explain. c. Now suppose that the US decides on free trade in automobiles with Europe. How many automobile fırms will there be in the US and in Europe combined? What will be the new equilibrium price of automobiles? Explain. d. Why are prices in the US different with and without trade? Are consumers better off or worse off with trade? In what ways?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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