Question
where i is the quantity of smartphones purchased by consumers from Firm ; is the size of the market; is the number of firms in
where i is the quantity of smartphones purchased by consumers from Firm ; is the size of the market; is the number of firms in the market; i is the price charged by Firm ; - 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 i, i and .(b) What is the equilibrium average cost of production (i) for each firm?(c) Taking the number of firms as given, what is the price i 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 us = 1.125 million smartphones and the size of the China market is cn = 2 million smartphones.(d) Suppose the US and China do not trade smartphones. Calculate the number of firms and smartphone prices in the US ( us, us) and in China ( c, c).(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 w= 3.125 million smartphones. Calculate the number of firms (w) and the smartphone price (w) 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.
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