Consider two nations that are unreservedly exchanging separated items. Every maker in the business is liable to expanding comes back to scale, got from settled expenses of generation. Specifically, the cost capacity of a firm in the business is direct as for yield, with altered expenses of 100 and variable expenses of 20 for every unit of yield. The interest capacity for each separated item is equivalent to Q= s[1/n – 1/2 (p-P)] where s is size of the business sector, p is the cost charged by the maker and P is the normal cost in the business. There is free passage in the business. Accept that the extent of the business sector is 2,000 in the Home nation and 3,000 in the Foreign nation. [HINT (in case you need it): If the demand function is: , then ] a) Compute the equilibrium price that any producer will charge, as a function of the number of firms in the industry and the size of the market. b) Write down the average costs faced by any firm, as a function of the number of firms in the industry and the size of the market. c) Compute the number of firms (in the long run), the price charged for each product, and the quantity produced by each firm in the industry in the free trade equilibrium. Show it in a graph. d) Assume now that entry in the market is not free: each firm has to pay a license fee 300 to its own government, to be renewed every year, in order to participate in the market. Compute the number of firms (in the long run) in the free trade equilibrium under this new situation. e) Are consumers better off or worse off under the government licensing regime? EXPLAIN. Consider two nations that are unreservedly exchanging separated items. Every maker in the business is liable to expanding comes back to scale, got from settled expenses of generation. Specifically, the cost capacity of a firm in the business is direct as for yield, with altered expenses of 100 and variable expenses of 20 for every unit of yield. The interest capacity for each separated item is equivalent to Q= s[1/n – 1/2 (p-P)] where s is size of the business sector, p is the cost charged by the maker and P is the normal cost in the business. There is free passage in the business. Accept that the extent of the business sector is 2,000 in the Home nation and 3,000 in the Foreign nation. [HINT (in case you need it): If the demand function is: , then ] a) Compute the equilibrium price that any producer will charge, as a function of the number of firms in the industry and the size of the market. b) Write down the average costs faced by any firm, as a function of the number of firms in the industry and the size of the market. c) Compute the number of firms (in the long run), the price charged for each product, and the quantity produced by each firm in the industry in the free trade equilibrium. Show it in a graph. d) Assume now that entry in the market is not free: each firm has to pay a license fee 300 to its own government, to be renewed every year, in order to participate in the market. Compute the number of firms (in the long run) in the free trade equilibrium under this new situation. e) Are consumers better off or worse off under the government licensing regime? EXPLAIN.
