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    Suppose That Fixed Costs For A Firm in The Automobile

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    Miroslav Gegoski
    This document discusses a model of the automobile industry with fixed and variable costs. It asks the reader to calculate: 1) The equilibrium number of firms and price in the US and European markets without trade 2) The equilibrium price with closed markets 3) The number of firms and price if the US and Europe engage in free trade Free trade leads to more firms and lower prices, benefiting consumers.

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    Suppose That Fixed Costs For A Firm in The Automobile

    Uploaded by

    Miroslav Gegoski
    359 views1 page
    This document discusses a model of the automobile industry with fixed and variable costs. It asks the reader to calculate: 1) The equilibrium number of firms and price in the US and European markets without trade 2) The equilibrium price with closed markets 3) The number of firms and price if the US and Europe engage in free trade Free trade leads to more firms and lower prices, benefiting consumers.

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    Suppose That Fixed Costs for a Firm in the Automobile

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    Suppose That Fixed Costs for a Firm in the Automobile

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    This document discusses a model of the automobile industry with fixed and variable costs. It asks the reader to calculate: 1) The equilibrium number of firms and price in the US and European markets without trade 2) The equilibrium price with closed markets 3) The number of firms and price if the US and Europe engage in free trade Free trade leads to more firms and lower prices, benefiting consumers.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    359 views1 page

    Suppose That Fixed Costs For A Firm in The Automobile

    Uploaded by

    Miroslav Gegoski
    This document discusses a model of the automobile industry with fixed and variable costs. It asks the reader to calculate: 1) The equilibrium number of firms and price in the US and European markets without trade 2) The equilibrium price with closed markets 3) The number of firms and price if the US and Europe engage in free trade Free trade leads to more firms and lower prices, benefiting consumers.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Suppose that fixed costs for a firm in the automobile #9438

    Suppose that fixed costs for a firm in the automobile

    Suppose that fixed costs for a firm in the automobile industry (start-up costs of factories, capital
    equipment, and so on) are $5 billion and that variable costs are equal to $17,000 per finished
    automobile. Because more firms increase competition in the market, the market price falls as
    more firms enter an automobile market, or specifically, , 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
    300 million and 533 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 United States and Europe if the
    automobile industry is closed to foreign trade?
    c. Now suppose that the United States decides on free trade in automobiles with Europe. The
    trade agreement with the Europeans adds 533 million consumers to the automobile market, in
    addition to the 300 million in the United States. How many automobile firms will there be in the
    United States and Europe combined? What will be the new equilibrium price of automobiles?
    d. Why are prices in the United States different in (c) and (b)? Are consumers better off with free
    trade? In what ways?

    Suppose that fixed costs for a firm in the automobile

    ANSWER
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