1. Suppose that fixed costs for a firm in the monopolistically competitive automobile industry are $50 and that variable costs are equal to $50 per finished automobile (➡ marginal cost=850). Because more firms increase competition in the market, the market price falls as more firms enter an automobile market, or specifically, P = 50+ (20/n), where n represents the number of firms in a market. Assume the size of the U.S. industry is 1000. Use the internal economies of scale theory to: (a) Calculate the equilibrum number of firms in the US without trade? (b) What is the equilbrium price of automobiles in the United States in autarky? (c) What is the equilibrium output per firm in the US in autarky?

1. Suppose that fixed costs for a firm in the monopolistically competitive automobile industry are $50 and that variable costs are equal to $50 per finished automobile (➡ marginal cost=850). Because more firms increase competition in the market, the market price falls as more firms enter an automobile market, or specifically, P = 50+ (20/n), where n represents the number of firms in a market. Assume the size of the U.S. industry is 1000. Use the internal economies of scale theory to: (a) Calculate the equilibrum number of firms in the US without trade? (b) What is the equilbrium price of automobiles in the United States in autarky? (c) What is the equilibrium output per firm in the US in autarky?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 1E

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1. Suppose that fixed costs for a firm in the monopolistically competitive automobile industry are $50 and that variable costs are equal to $50 per finished automobile (marginal cost= $50). Because more firms increase competition in the market, the market price falls as more firms enter an automobile market, or specifically, P 50 + (20/n), wheren represents the number of firms in a market. Assume the size of the U.S. industry is 1000. Use the internal economies of scale theory to: (a) Calculate the equilibrum number of firms in the US without trade?
7. Suppose you are employed at a monopolistic company as a research (pricing) economist and you are deriving the behavior of two markets based on demand curves given by: D1(P1) = 50 – P1 D2(P2) = 50 – 2p2 Assume that the marginal cost is constant at $8 a unit. (a) If it can price discriminate, what price should it charge in each market in order to maximize profits? (b) If it can't price discriminate, what price should it charge?
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