Mass Tutorial 8

Mass Tutorial 8 - ECON0301 Tutorial 8 1. Suppose that fixed...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON0301 Tutorial 8 1. Suppose that fixed costs for a firm in the automobile industry (start-up costs of factories, capital equipment, and so on) are $2 billion and that variable costs are equal to $15,000 per finished automobile. Because more firms increase competition in the market, the market price falls as more firms enter an automobile market, or specifically P = 15,000 + (500/n), where n represents the number of firms in a market. Assume that the initial size of the U.S. and the European automobile markets are 500 million and 800 million people, respectively. a. Calculate the equilibrium number of firms in the U.S. and European automobile markets without trade. b. What is the equilibrium price of automobiles in the U.S. and Europe if the automobile industry is closed to international trade? c. Now suppose that the United States decides on free trade in automobiles with Europe. The trade agreement with the Europeans adds 800 million consumers to the automobile market, in addition to the 500 million in the United States. How
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/23/2011 for the course ECON 301 taught by Professor S.chiu during the Spring '11 term at HKU.

Page1 / 2

Mass Tutorial 8 - ECON0301 Tutorial 8 1. Suppose that fixed...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online