**Industry Characteristics of the Oceania and Transylvania Market** - **Market Composition:** - There are 10 firms in the combined market. - 3 firms are located in Oceania. - 7 firms are from Transylvania. - **Solar Panel Demand:** - Total demand (and units sold) in the combined market is 100,000 units. - 25,000 units were sold in Oceania. - 75,000 units were sold in Transylvania. **Questions for Analysis:** **a. Market Composition Hypothesis:** - A research analyst suggests that, in the long run, the Oceania market (if closed to foreign competition) will solely consist of the current three firms located in Oceania. Analyze the validity of this assumption. **b. Impact of Closing Market:** - Based on the hypothesis in (a), discuss the implications on price changes, average cost changes, and the dynamics of firm entry or exit in the Oceania market if it closes to foreign competition. **c. Pricing Power Argument:** - One colleague argues that closing the market will benefit Oceania firms by restoring pricing power, thereby increasing individual firms' revenues. Evaluate the accuracy of this argument. **d. Industry Productivity Speculation:** - Consider how varying efficiencies among firms might influence average industry productivity in Oceania if it closes to foreign competition. Discuss potential changes. **Note:** For visual elements like graphs or diagrams, a detailed explanation would be provided if applicable. However, in this context, no such elements are present. ### 3. Trade Dispute You are a research associate covering the solar panel industry for Goldman Sachs. The countries of Transylvania and Oceania are having a trade dispute. Upset with the behavior of Transylvanian firms, the government of Oceania is threatening to close its market to Transylvanian firms. You are asked to write a research report on the implications of this scenario. #### Some information about the solar panel industry in Oceania and Transylvania: - Firms in both countries share the same technological characteristics. Consultants from Accenture report that the fixed cost associated with producing a solar panel is $50,000, the variable costs associated with producing a solar panel are $25. The demand elasticity parameter "b" was estimated to be 1/50.