Internal economies of scale:

a) Draw a diagram containing the average cost and price curves to show how consumers benefit when a country opens up to trade, in terms of price and number of varieties available to consumers.

b) Using the algebraic equations (and not the diagrams), show what happens to the equilibrium number of firms and price in a country if the marginal cost c increases. Are consumers better off or worse off?

c) Assume that F=3 , c=0.5 , b=0.3 , SCAN =400 , SEU =600. Use the values here to show which country (Canada or the EU) gains more when the two countries integrate their markets. Show this by calculating the following things for both pre and post-integration: price, number of varieties available to consumers, average cost.