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Assume that there are two countries (A and B) that produce product X. The demand functions are as follows: P A = 80 - 2Q
Assume that there are two countries (A and B) that produce product X. The demand functions are as follows:
PA= 80 - 2QA PB= 140 - QB
There is only one firm in each country. Firm a operates in Country A, and Firm b operates in Country B. The marginal cost is the same for all firms and is equal to $20.
a) Find the autarky equilibrium prices and quantities.
b) Assume free trade. What would be the quantity of exports?
c)Which firm benefits from freetrade, Firm aor Firmb?Why?
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