Question

Suppose that widgets are produced by a monopolistically competitive industry. If each firm in this market has the same cost structure and charges the same price, then Q = S / n, Assume that the demand curve is such that b = 1 / 20.
The cost function for any given producer is given by:
TC = 3,000 + (4 x Q)
Suppose there are two countries Home and Foreign and Home has a market size SH = 2,400 widgets and Foreign has market size SF = 1,350 widgets. Assume that both countries have the same costs of production and demand curve.
a) Find the equilibrium number of firms and the equilibrium price and quantity in the long run for each country in the absence of trade.

Answer 1

Answer:

The equilibrium number of firms is 20.

Explanation:

Q = SH × b

   = 2,400 × (1/20)

   = 2,400 × 0.05

   = 120

Also given, Q = S / n

                120 = 2,400 / n

                  n = 20