N8

Suppose that the fixed cost for the trucks industry is $5 billion per truck and that its marginal cost per truck is $ 17,000. The incidence of increased competition took place due to entry of new firms and the price was reduced according to the formula P=17,000+(150/n): where n is the number of firms in the market, Market size is 300 million in Sweden and 533 million in Norway.

A) Calculate the number of firms for Sweden and Norway when at autarky

B) Calculate the price in each market under autarky

C) Suppose now that we integrate the Swedish and Nordic markets by allowing free trade in each of them. What will the new price be?

D) How will both the Swedish and Nordic consumers be better off after trade and integration of both markets? Detect all sources of gains from trade.