Question
In automotive industry in Indonesia, a company's fixed initial investment cost is 4 billion dollars and variable cost for each car is 24000 dollars. The
In automotive industry in Indonesia, a company's fixed initial investment cost is 4 billion dollars and variable cost for each car is 24000 dollars. The relationship between price and monopolistic competition market firm numbers (n) is shown as; P = 24000 + (125/n)
Domestic market size (population - S) is 288 million. There is a potential new market consisting of 512 million population nearby.
With these in mind, calculate the total cost function and show pre-trade equilibrium firm amount for Indonesia in a graph.
Then, find out the number of companies that'll be observed in a new equilibrium in the case of Indonesian automakers reaching the potential of exporting to nearby market with 512 million population. State how the new equilibrium has formed and the effects of it on wealth.
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