Question 3. Consider the following scenario in which internal economies of scale exists in the smartphone industry and each firm sells smartphones that are differentiated from other firms' products. The market for smartphones is monopolistically competitive. = $10,000. The Suppose every firm is identical. For each individual firm, fixed costs are FC marginal cost of producing each additional smartphone is MC = $100. The demand curve facing each individual firm i is li = Sx 1 (Pi - ) 2 where li is the quantity of smartphones purchased by consumers from Firm i; S is the size of the market; n is the number of firms in the market; Pi is the price charged by Firm i; is the average price in the market. Assume that every firm is a profit maximizer. (a) Write down the equation for every firm's marginal revenue in terms of Pi, li and S. (b) What is the equilibrium average cost of production (AC;) for each firm? (c) Taking the number of firms n as given, what is the price Pi charged by every profit maximizing firm? Recall that a firm sets its marginal profit to 0 to maximize its profit. Suppose the size of the US market is SUS = 1.125 million smartphones and the size of the China market is SCN = 2 million sm smartphones. (d) Suppose the US and China do not trade smartphones. Calculate the number of firms and smartphone prices in the US (nus, pus) and in China (n,PC). (e) Suppose the US and China engage in free trade in smartphones, such that there is an integrated world market for smartphones with a combined market size of SW 3.125 million smartphones. Calculate the number of firms (n") and the smartphone price (PW) in equilibrium in the integrated world market. (f) Do consumers in the US benefit from free trade in smartphones? If so, explain two ways in which they benefit. =