View the step-by-step solution to:

Question

1.     

Answer the questions below based on this diagram, which represents the situation for a

monopo­listically com­petitive firm in the short run after a country has "opened up" to trade. You may assume that point A is the long-run equilibrium with­out trade ("autarky") and NA is the number of firms in the autarky (no trade) equilib­rium and when the country "opens up" to trade.

 a13626162d720d51ec5addc899b5fb2.png

a.      Explain the meaning of the two demand curves: what is the difference between d2 and D/NA? Why is d2 flatter?

 

b.     How does the firm try to maximize its profits in the above situation, that is what pulls it away from the autarky equilibrium at point A? Where does the firm try to operate, at B or B¢, and why? Where does the firm end up producing, at B or B'?

 

c.      What adjustments are set in motion by the situation you have just described in part b? Specifically, will firms enter or exit the industry, and why?

 

d.     What will happen to output, average cost, price, and profits for each domestic firm in the long-run equilibrium with trade? A graph is optional, but fully explain what happens in moving to the long-run equilibrium with trade.

 

e.      Summarize (qualitatively) the types of "gains from trade" that are found in this model.

a13626162d720d51ec5addc899b5fb2.png

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes