...Please can anyone please help..
2. Consider an automobile industry in Britain that produces differentiated varieties of cars. The demand faced by each (differentiated) car manufacturer is given by Q =5x 2,506 * (P- P) () where Q is the quantity of cars sold by the firm, 5 are total sales (in quantity terms) of cars in the industry, " is the number of firms in this industry, P is the price charged by the firm itself, and P is the average price charged by its competitors. All firms in the industry face a constant marginal cost 26, 000 per car produced, as well as initial fixed cost of [10,000,000 that needs to be incurred regardless of the number of cars produced. Assume that there is free entry in this market. Initially, Britain does not open up for trade, and the total demand for cars is capped at 5 = 100,000. (a) Derive the values of it and P in a long-run symmetric equilibrium for Britain. Show all the relevant steps. (14 points) Suppose that Britain opens up to trade and the demand for British cars 5 increases to 256,000. For now, we focus on the short-run effects where the number of firms remains unchanged. (b) Calculate the short-run profits after Britain opens up to trade. How did it change compared to (a) and what caused this change? (6 points) (c) Suppose that foreign customers have a lower demand elasticity than British customers and you cannot price discriminate between customers in Britain and abroad. How would the profit-maximising price change? (max. 210 words; 5 points) Consider a more realistic scenario where (1) each car manufacturer in Britain has a different marginal cost, and (B) there exists trade costs between Britain and the rest of the world. (d) Suppose that you have access to data on all bilateral trade flows of cars and all bilateral trade barriers in the world in 2019. How should you consistently estimate the trade elasticity (Le. the percentage change in exports for a one percentage change in trade cush]? (max. 300) words; 10 points) (e) British car manufacturers also had an option to use components from suppliers in either China or Britain in their production process, as well as an option to integrate with their sup- pliers as well. Recently COVID-19 has unfortunately disrupted freights and transportations of components from abroad. Do you expect productive or non-productive car manufactur era in Britain to be affected most from such a disruption? Explain your arguments carefully. (max. 400 words; 12 points)Consider an economy with three goods. Suppose that a consumer has a continuous utility function satisfying local nonsatiation. Suppose also that the consumer's Walrasian demands for goods 1 and 2 when p3 = 1 satisfy 331(33'13132, 1: W) = a1 + 51391 + C1P2 + d1p1P2 5132(piap2a 1: W) = a2 + 52101 + C2392 + d2P1P2 (a) State Walras' law and use it to nd the Walrasian demand for good 3. (It's ne to just give the demand when p3 = 1.) (b) State a result about the homogeneity of Walrasian demands and use it to nd the consumer's Walrasian demands at other values of p3. (c) Note that the Walrasian demands for goods 1 and 2 are independent of wealth. Show that this makes it very easy to nd the Hicksian demands for goods 1 and 2. State the Compensated Law of Demand. Show that this law puts some restrictions on the possible values for (:11, b1, (:1, (171,32, b2, (:2,d2). (d) Dene the Slutsky substitution matrix. What properties must it have if demands are derived from maximizing a continuous, locally nonsatiated, and strictly quasiconcave utility function? Give at least one additional restriction on (:11, b1, (:1, (1,132, 52,62,132\" that this implies. The Islandian economy is described by the equations that appear in the table below. Note: The interest rate is recorded as a whole number. For example. if the interest rate is 3%. then r would be 3 in the relevant equationisi. Y= L= Tusl |=20G 4U!" G: 250+D.?Y T NI: 4110 EOE Islandia was initially resistant to trading with the rest of the world. However. after receiving advice from the International Monetary Fund. Islandia opens up to world trade. Calculate the real exchange rate that exists once Islandia decides to trade with the rest of the world. {Should you need to round off. round offto the nearest whole number. Show your workings.) (4] [You should preferably type the answers to the "long" questions in the spaces provided. Alternatively. you may write your answers [in pen} on a white piece of paper and then take a photo of your answer and upload it to the correct question.]
