Need business and finance help with International Economics

Dec 7th, 2015
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Question description

  1. Consider a good that is produced by an industry characterized by monopolistic competition. At the beginning there are two separate markets with annual sales 1.08 billion and 1.92 billion units, respectively. The sensitivity parameter of individual firm’s demand to price changes is 1/150; fixed costs are 500 million; and marginal cost is constant at $12,000 per unit. Using this information and your knowledge of monopolistic markets, answer the following questions.

    1. (a)  In absence of international trade, how many firms are operating in each market?

    2. (b)  What are the respective prices for consumers in each market?

    3. (c)  How many firms will operate in the integrated market under international trade regime with no trade costs?

    4. (d)  What will be the price in the integrated market?

    5. (e)  Is lower price the only benefit of the integrated market to the consumers? Explain.

    6. (f)  As stated above, the problem assumes that all firms have the same technology. In reality, this is not true. Explain how one can easily modify the problem in order to consider the scenario when when firms have different production technologies. 


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