Imagine that automobiles are produced by a monopolistically competitive

industry. The demand curve facing any given producer of automobiles is

described by P = c + 1=(b n). The total cost is C = F + c Q. where c

is the marginal cost and equals $ 4,000, xed cost F = 360; 000; 000, Q is

the number of automobiles sold per rm, b = 1=10; 000. n represents the

number of rms in a market.

Now suppose there are two countries, Home and Foreign. Home has

annual sales of 900,000 automobiles; Foreign has annual sales of 1.6 million.

The two countries have the same costs of production

1. Calculate the equilibrium number of rms at home and in the foreign

without trade (please round to the nearest integer).

2. What is the equilibrium price of automobiles at home and in the foreign

if the automobile industry is closed to foreign trade?

3. Now suppose it is possible for home and foreign to trade automobiles

costlessly with one another. What will be the new equilibrium price?

4. Please discuss winners and losers after trade.