ECO 5745: Global Trade and Policy Part (ili): Suppose that the United States begins to trade scooters internationally. Would Rockin' Rides Problem Set 4 now earn a profit or loss if it were to produce and sell the quantity that you identified in part (i)? Explain your reasoning carefully. Part (iv): Based on your answer to part (ili), two things should happen as the deodorant market adjusts Question 1 to foreign competition. The quantity produced by each individual firm (e.g., Rockin' Rides) will change, When a monopolistically competitive market opens up to international trade, the individual firm-level and the total number of firms active in the market will change. Identify and explain the direction of each demand curves faced by each firm are affected. Even before this prompts market entry or exit (which of these changes. would further affect these individual firm-level demand curves), they shift outward (i.e., demand increases) and become flatter. Part (i): Explain why opening up to trade leads the individual firm-level demand curves to shift outward. Part (ii): Explain why opening up to trade leads the individual firm-level demand curves to become flatter. Question 2 Part (i): When a monopolistically competitive market opens up to international trade, each firm produces a greater quantity of output than it did before. Explain why this is. Part (ii): When a monopolistically competitive market opens up to international trade, the total number of variants globally decreases, but each consumer has more variants to choose from. Explain how this is possible. Question 3 Below, you are provided with the firm-level demand, marginal revenue, and relevant cost curves for Rockin' Rides. Rockin' Rides is a Gainesville-based firm that produces electric scooters in the monopolistically competitive scooter market. Suppose, initially, that this graph depicts the scenario in which scooters are not traded internationally. $2,400 L. $2,000 51,600 $1,200 and ATC . $800 $400 Demand 150 Quantity of Electric Scooters (in thousands) Part (i): Suppose that the United States does not trade scooters internationally. Identify the profit- maximizing number of electric scooters that Rockin' Rides will sell, and the per-scooter price that it charges. Part (ii): Suppose that the United States does not trade scooters internationally, and that Rockin' Rides produces and sells the quantity that you identified in part (i). How much profit does Rockin' Rides earn? What does this tell you about whether there is currently an incentive for new firms to enter the domestic scooter market, or for existing firms to exit the domestic scooter market
