Calculate the equilibrium number of firms in the u.s

Reference no: EM131134916

Suppose that fixed costs for a firm in the automobile industry (start-up costs of factories, capital equipment, and so on) are $5 billion and that variable costs are equal to $17,000 per finished automobile. Because more firms increase competition in the market, the market price falls as more firms enter an automobile market, or specifically, , where n represents the number of firms in a market. Assume that the initial size of the U.S. and the European automobile markets are 300 million and 533 million people, respectively.

a. Calculate the equilibrium number of firms in the U.S. and European automobile markets without trade.

b. What is the equilibrium price of automobiles in the United States and Europe if the automobile industry is closed to foreign trade?

c. Now suppose that the United States decides on free trade in automobiles with Europe. The trade agreement with the Europeans adds 533 million consumers to the automobile market, in addition to the 300 million in the United States. How many automobile firms will there be in the United States and Europe combined? What will be the new equilibrium price of automobiles?

d. Why are prices in the United States different in (c) and (b)? Are consumers better off with free trade? In what ways?

Reference no: EM131134916

Questions Cloud

The theory of external economies : Explain this tendency of industrial clusters to break up in terms of the theory of external economies.

Describe the specific linkage arrangement : Describe the specific linkage arrangement, if any, for these four genes. If two pure breeding lines were crossed to produce the heterozygous individual, what were their genotypes

Federal law which sets standard for us public company board : The federal law which sets standards for all U.S. public company boards , management and public accounting firms.

Brief description of the selected court case or lawsuit : Provide a brief description of the selected court case or lawsuit. Identify the selection criteria and methods, and relate them to the needs of the organization in the case.

Calculate the equilibrium number of firms in the u.s : Why are prices in the United States different in (c) and (b)? Are consumers better off with free trade? In what ways?

Difference between its domestic price and its export price : Would a firm from a small country be more or less likely to be accused of dumping when it exports to a large country (relative to a firm from the large country exporting to the small country)?

Describe current issue surrounding the social security : Write a 5- to 8-page research paper describing current issues surrounding the Social Security and the current policy being implemented in relationship to its impact on public finance.

Name of the unincorporated business association : Name of the unincorporated business association made up of parties who combine their money, property, efforts etc. in order to accomplish a particular business enterprise.

Who have red-green colorblind xxy sons : Phenotypically normal parents who have red-green colorblind XO daughters, and phenotypically normal parents who have red-green colorblind XXY sons

User Account

All Pages