1. Suppose that fixed costs for a firm in the monopolistically competitive automobile industry are $50 and that variable costs are equal to $50 per finished automobile (marginal cost $50). Because more firms increase competition in the market, the market price falls as more firms enter an automobile market, or specifically, P 50+ (20/n), where n represents the number of firms in a market. Assume the size of the U.S. industry is 1000. Use the internal economies of scale theory to: (a) Calculate the equilibrum number of firms in the US without trade? (b) What is the equilbrium price of automobiles in the United States in autarky? (c) What is the equilibrium output per firm in the US in autarky?

1. Suppose that fixed costs for a firm in the monopolistically competitive automobile industry are $50 and that variable costs are equal to $50 per finished automobile (marginal cost $50). Because more firms increase competition in the market, the market price falls as more firms enter an automobile market, or specifically, P 50+ (20/n), where n represents the number of firms in a market. Assume the size of the U.S. industry is 1000. Use the internal economies of scale theory to: (a) Calculate the equilibrum number of firms in the US without trade? (b) What is the equilbrium price of automobiles in the United States in autarky? (c) What is the equilibrium output per firm in the US in autarky?

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: Monopolistic Competition

Section: Chapter Questions

Problem 4PA

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