1. The size of the US premium gin market is 20,000 bottles. The fixed cost of establish- ing a premium gin firm is $120,000. The PP curve for premium gin is PG = 46 + 240 ,

n where n is the number of firms in the market. The marginal cost of producing a

bottle of premium gin is $46.

(a) Find the number of firms in the US premium gin market and the price of one bottle (unit) of gin.

(b) Suppose the UK gin market faces the same PP curve and costs. However, the size of the UK gin market is 30,000 bottles. Find the number of premium gin firms in the UK market and the price at which premium gin sells in the UK market.

(c) When the US and UK start trading, would the combination of the UK and US premium gin markets lower prices? What would be the new price?

(d) If you ran a premium gin distillery in the US, would your firm be in danger? How many premium gin firms would be left after trade in both countries?

(e) Asanavidconsumerofpremiumgin,areyouhappierwiththecombinedmar- ket? Why or why not?