Assume that in country A's automobile industry the start-up costs (fixed costs) for a manufacturer are $1.2 billion. The marginal cost of producing an automobile is $12, 000. The market price per automobile decreases with the competition, i.e., automobile price falls as more firms enter the industry. Suppose the price function is: P=12,000+300/n. n is the number of firms in the market. The size of country A's automobile market is 36 million people.

(1) Compute the equilibrium number of automobile manufacturers and the price of an automobile in the market.

Now assume that automobile manufacturers in country B face the same production cost function and price function as above. But country B has a bigger market of 64 million people. The two countries decide to open up the automobile market to each other.

(2) How many automobile manufactures can survive in the new equilibrium? How much does an automobile cost in country A and country B, respectively, in the new equilibrium?

(3) What inference can you make from this example?