Free Trade: Now combine the two economies together in free trade. Now what are the results? How many firms and varieties of automobiles are there available? What is the price of the cars? Draw a diagram illustrating the model. What happened in the industry in free trade? Are consumers better off? Are there any gains from trade? What are they? Why?

F nF Average Cost: AC = + +C Q S Price-Competition: P=c+ Q Sb C + nb where F= fixed cost = $750,000,000 Q = sales of an individual firm S= total sales of the industry (Su = 900,000 and S; = 1,600,000) c=marginal cost = $ 5500 b= a parameter of the demand equation = 1/30,000 n=number of firms in the market P= price per car AC = average cost per car