In a monopolistic competition environment, there are n identical firms. Each firm faces demand Q = 450,000 (-2(P-P)), where n is the number of firms, Q is quantity demanded from (and, in equilibrium, supplied by) each firm, P is the price charged by the firm, and P is the average price charged by all firms (taken by each individual firm to be a constant). Before each firm engages in business it must spend $1000 in a license fee. After that, for each unit that it produces, it must hire two hours' worth of labor, at an hourly rate of $5/hour. These are the only costs the firm incurs. Deductions are more important than results. Just writing a memorized formula is of little use. Explain all assumptions that you make (for example, any choice for P) and state explicitly where you use each assumption (for example if you use the assumption of identical firms, state where). n = + 10. 450 1. Show that each firm's average cost in equilibrium is given by AC 2. Show that each firm will charge price P = +10 in equilibrium. 2n 3. Calculate the equilibrium number of firms. If you are right until now you'll get a whole number. 4. Calculate the equilibrium price that each firm charges. 5. Suppose this country integrates with another country, that is 3 times as large, but is otherwise identical. That is, suppose that the size of the market simply quadruples. Redo the problem for a market size of 1,800,000, and complete the sentence below. You may use without proof the fact that one of the curves in the relevant graph for this model will not change. Note that you should again arrive at a whole number of firms. Consumers gain because the number of varieties available to them grows from varieties, and because the price decreases form $_ to $ to varieties