1. Suppose we live in a world where the widgets market is a monopolistically competitive market with homogenous firms (i.e. no productivity differences among firms). There are two countries: A and B. In each country, consumer demand for widgets can be written as Q = S x-x (P – P), where n is the number of widget firms, P the price of widget charged by the firm, and P the average price of widget by other firms in the market. Moreover, widget firms in both countries have the same total cost function, which is C = 750 + (5 × Q). It is also given that marginal revenue of each firm can be written as MR = P – 300 Total demand for widget in country A is SA = 900 and Sg = 1600 in country %3D
1. Suppose we live in a world where the widgets market is a monopolistically competitive market with homogenous firms (i.e. no productivity differences among firms). There are two countries: A and B. In each country, consumer demand for widgets can be written as Q = S x-x (P – P), where n is the number of widget firms, P the price of widget charged by the firm, and P the average price of widget by other firms in the market. Moreover, widget firms in both countries have the same total cost function, which is C = 750 + (5 × Q). It is also given that marginal revenue of each firm can be written as MR = P – 300 Total demand for widget in country A is SA = 900 and Sg = 1600 in country %3D
Chapter10: Monopolistic Competition And Oligopoly
Section: Chapter Questions
Problem 1.2P
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Suppose we live in a world where the widgets market is a monopolistically
competitive market with homogenous firms (i.e. no productivity differences
among firms). There are two countries: A and B.
In each country,
consumer demand for widgets can be written as Q = S x- x (P – P),
30
where n is the number of widget firms, P the price of widget charged by
the firm, and P the average price of widget by other firms in the market.
Moreover, widget firms in both countries have the same total cost function,
which is C = 750 + (5 × Q). It is also given that marginal revenue of each
30Q
firm can be written as MR = P –
Total demand for widget in country A is SA = 900 and Sg = 1600 in country
В.
a) Derive the average cost function from the total cost function. What is
the marginal cost?
b) Calculate the number of firms and the prices of widget in each country
when trade is not allowed (that is, calculate na, ng, Pa, PBÌ-
c) Calculate the number of firms and the price of widget in the unified
market when trade is allowed (that is, calculate n,, P.}.
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