Suppose that the automobile industry in Japan can be characterized by the model

Question

Suppose that the automobile industry in Japan can be characterized by the model of monopolistic competition. Assume the following values for the parameters of the demand and cost fuction:

b=1/30,000

F=$750,000,000

c=$5,000

(a) assuming that annual sales of automobiles are equal to 900,000, compute the number of firms, the price charged by each firm, and the output of each firm in equilibrium.

(b) Now suppose that there is a second country, the US, which has annual sales of automobiles of 1.6 million. Compute the number of firms, the price charged by each firm, and the output of each firm in equilibrium (assume the same parameters as before).

(c) Now assume that the two countries can trade each other. Compute the number of firms, the price charged by each firm, and the output of each firm in equilibrium,

Explanation / Answer

Suppose that the automobile industry in Japan can be characterized by the model

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