Unformatted text preview: n . (d) Plot AC as a function of n and P as a function of n on the same diagram. Pay careful attention to the slopes of the functions and the intercepts. Determine the equilibrium price and equilibrium number of firms on the diagram. (e) What is the relationship between P and AC in equilibrium? What does this mean for profits in the industry? What is the key assumption driving this outcome? (f) How can we represent the opening of international trade in this economy? Illustrate using the diagram from (d). What happens to price and the number of firms? What is the impact of international trade on welfare? (g) Solve algebraically for the number of firms in equilibrium. Illustrate the relationship between the ‘size of the market’ and the number of firms on a diagram. Use this diagram to explain the assertion that ‘globalization increases concentration.’...
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- Spring '11
- Economics, Expression, Firm, average cost AC