Suppose we consider the industry for industrial lasers in the US, which requires large fixed investments. In particular, suppose that: 0 Upfront investment for production by each firm must be P = $10,000,000. 0 Variable production costs are constant at c = $50, 000. 0 The market price is given by P = c + % , where where n is the number of firms in the market and b = 2% , so 15 = 50,000 + 200/11 . ' The autarky market size in the US is S 2 $3,200,000. (a) Given this setup with increasing returns, why do we consider a market with monopolistic competition? Why not perfect competition? (b) Given the equation P = 50, 000 + 200/ 11, does the market price depend posi- tively or negatively on the number of firms in the market? Explain why and what a decrease in firms means for consumers (c) Graph the industry equilibrium in autarky for the US, with the market price on the vertical axis and the number of firms on the horizontal axis. (d) What is the equilibrium price of lasers and the equilibrium number of firms? (e) Suppose immigration reform occurs, and the market size increases from S = 3,200,000 to S = 5,000,000. What happens to the PP curve and CC curve? What happens to the price and the number of firms in equilibrium? (f) Suppose that the Government imposes a tax on the firm's inputs (laser resis- tors) increasing it's variable cost. Explain intuitively what will happen in equi- librium? Are there going to be more or less firms