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Suppose the production technology in computers exhibits increasing returns to scale technology. The fixed cost of production is 400, and the marginal cost of
Suppose the production technology in computers exhibits increasing returns to scale technology. The fixed cost of production is 400, and the marginal cost of production is constant and equals 20. Because more firms increase competition in the market, the market price falls as more firms enter the computer market, specifically P=20+(200/N), where N represents the number of firms in the market. Assume that the initial size of Turkey is 800. a) Find the number of firms operating in the computer market in autarky in Turkey. While answering this question, please draw the average cost curve and price curve very carefully. b) If Turkey opens up to free trade with a completely identical country, what will be the number of firms operating in the integrated economy? Compare it with your answer in autarky. Are consumers better off with an integrated economy? In what ways?
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