Suppose that the fixed costs for afirm in the airplane industry are $4 billion and that variable costs are equal to $10,000 per finished airplane. Because morefirms increase competition in the market, the market price falls as morefirms enter the airplane market, or specifically P = 10,000 +10/n, where n represents the number offirms in the market. Assume that the initial size of the US and the European airplane markets are 625 million and 441 million, respectively. (Explain your steps as best as possible. I am not expecting equations but the underlying intuition and assumptions.)

a) Calculate the long run equilibrium number offirms in the U.S. and the European airplane markets without trade. (4pts)

b) Now suppose that the U.S. decides on free trade in airplanes with Europe. The trade agreement with Europe adds 441 million consumers to the airplane market, in addition to the 625 million in the U.S. How many airplane firms will there be in the U.S. and Europe combined in the long run? What will be the new long run price of airplanes? (4pts)