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Pi=1nb+P¯-XiX¯bPi=1nb+P¯-XiX¯b for any firm i. Fixed Costs are F=$6M, Marginal costs are constant C=$300 per barrel. b=.0125. The size of the home market is 30M barrels, and foreign is 15M barrels. [Note: any fractions for the equilibrium number of firms (n) should be rounded down to the nearest integer when doing any further calculations.]
a. How many firms will produce in the home market in autarky? How much output for each firm? What is the price per barrel?
b. How many firms will produce in the foreign market in autarky? How much output for each firm? What is the price per barrel?
c. How many firms will produce in equilibrium when the countries open for trade? How much output for each firm? What is the price per barrel?
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